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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: LLCF who wrote (48562)	11/9/1999 3:33:00 PM
From: A.L. Reagan	Respond to of 152472

Messrs. Kincade and Bittner re: puts & calls. I agree with each of your comments on my post #48486. To Jack, you are quite correct (with hindsight) that writing calls on a stock with explosive upside potential is indicative of having too much time on one's hands! When I did it, the stock had gone from 225 to 249 post earnings/split release then back to 245. So picking up the $15 premium on the Dec. 260 calls seemed like an OK bet. In fact, had I done at Thursdays close ($260) what I did at yesterday's open ($290) I'd have been a much happier camper. To David, while "re-covering" the originally written covered call by buying back the stock is sorta like shorting the put (i.e. not paying the premium to buy back the original call is at the outset the same effect as shorting the put), the future effect is different in that (a) if the stock were to go much below $260 the short put guy is screwed and doesn't have the choice to hold indefinitely until the stock price goes back up; and (b) if the stock continued to rise, as it has done today, the short put guy hasn't protected his original core long stock position from being called, and only has the limited put premium to show for it. So, I think buying back the stock is a little different from shorting the put. The whole purpose of my post was to show an example of what could go wrong with writing covered calls, and one way of bailing out (albeit not yet completely) of a bad position. In making the "extrication" decision the small amount of margin interest on buying shares to "deliver" to the owner of the call was a lot less than repaying the premium on buying back the call. On the downside, the question was "am I willing to accept ending up owning twice as many QCOM shares as I started out with at a price below $260" and the answer was unequivocably yes. To all, the message from my somewhat costly tale is don't mess with puts and calls on core holdings of a legacy stock like QCOM. When those alluring options premiums come hither, JUST SAY NO! Now, there might be a strategy of repetively buying a non-core block of Q and writing calls on it on the theory that the long-term downside risk of Q stock is minimal, but having learned the lesson the hard way, I'll take Jack's advice, leave that to the pros and "do it his way." (I'm sure Jack slept a whole lot better than I did Thursday through Monday!) In any event, other than being down net $15 ps from where I'd have been with the status quo ante, I'm relieved to have sprung my original Q shares from CBOE "cellblock 260" prison at a net cost of $15 ps versus $30 or more ps and now back to enjoying Q's upward performance. Interesting case study, appreciate you guys' input.