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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: taxman who wrote (143603)	10/1/1999 10:51:00 PM
From: Duncan J Horn	Read Replies (1) \| Respond to of 176387

Taxman Where is the risk? Worse case is that he takes delivery on his shares at a net cost of 35+. Seems like a great deal to me.

To: taxman who wrote (143603)	10/2/1999 2:04:00 AM
From: rudedog	Read Replies (3) \| Respond to of 176387

taxman - as opposed to say holding on to 100,000 shares of CPQ which I could have sold in the high 40's? <G> but seriously, my maximum exposure is about $360K, and I get 10,000 shares of DELL for that into the bargain. Assuming that DELL is under 40 in January and the shares get put to me. Assuming that they are in fact under 36 and it's a bad deal. Also assuming I don't roll the position before then... I am still feeling my way through options trading so I value any opinions or advice about my trades. But this one did not seem like a risky play. If there is something I am overlooking I would sure like to know about it. I can see a lot of reasons why DELL might remain in the 40's through January, but I don't see much likelihood it will go below 40. Nothing wrong with the business, continued good execution across the board, with the possible exception of service issues which are certainly not serious enough to tank the stock. It could be in the 50's by then, assuming a good 4Q. I think, after a year of "catching up", that DELL has pretty much grown into its price, and will start to move up with earnings growth in 2000. I'm not astute enough to say exactly when that will be, and we might see the same kind of range movement for a while. I have been selling covered calls all year, and was looking to get into a straddle or into selling puts somewhere along the way, anticipating an upward move. This bargain just gave me enough of a reason to do it now. I am already up almost a point and could roll these tomorrow and come out with $10K...

To: taxman who wrote (143603)	10/2/1999 10:11:00 AM
From: rudedog	Read Replies (1) \| Respond to of 176387

taxman and all - after reading my somewhat euphoric posts from yesterday, I see that I am guilty of exactly the kind of bullish positioning that ed forrest and others have discussed. Based on my somewhat limited knowledge of option plays, let me cover what might be risks for other investors who don't happen to be in my position. The buyer of an option will lose at most his original investment, since he (or she) is under no obligation to exercise the option. The seller, on the other hand, can have a much greater liability. In the case of calls, the seller is required to provide the underlying stock at the strike price if called, no matter what the actual stock price might be at the time of exercise. Theoretically that might result in an unlimited liability. Let's say I sold DELL calls at a strike of 40 and the stock runs to 80. Let's further assume that I don't have the money to buy back the calls, which would have greatly increased in value due to being deep in the money. As the calls move to expiry, I would have to come up with the difference between the strike price and the current stock price for the underlying. In the hypothetical case I just provided, for 100 contracts, that could be 40100,000 or 4 million dollars*. That's a lot to lose based on an original benefit of maybe $40,000... The protection against this risk is to watch the option market and the underlying, have a good feel for the trends, watch the investment like a hawk, and never get into a position where you don't have the money to buy your way out of the position. Selling puts is more bullish - you are betting that the stock will go up at least a little. The put seller has the liability to purchase the stock at the strike price at expiry. At least in this case, the seller knows the maximum liability. But still, one always should either be comfortable in buying the stock at the strike price, or have the cash to buy out the position. If for whatever reason DELL dropped well below 40 - say a general market panic or collapse of tech stocks because of government intervention with MSFT or any of a host of natural disasters - the cost to buy back those puts could jump to 2 or 3 times what the original premium was. In general I think that the put sale has many of the same risks as buying the underlying - but with more risk, and more reward. Don't go there if you don't have the money to get back out if things go sour. In my mind, option sales are not a way to generate cash if you are tight. Most of the people I know who have gotten burned on options lost because they did not have the money to adjust their position when things did not go as planned. I hope this will provide a little balance. What is low risk for me personally could turn into a real bone-crusher under adverse circumstances for someone who did not fully consider how to manage the downside.