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Technology Stocks : JDS Uniphase (JDSU) -- Ignore unavailable to you. Want to Upgrade?

To: Jill who wrote (2388)	11/30/1999 8:59:00 PM
From: SJS	Read Replies (2) \| Respond to of 24042

That's right. The risk is relative to the strike price. That's why the put premium of the 210's is small when the stock is 260, and grows when it comes back to 210. If you're prognostic enough to write puts at the low and it moves and STAYS north of that 210 strike, I want your secret! <g> However, I suspect that PAL wanted to catch a reasonable low (but not THIS closing low of 228 ....) and get a bounce north of or back close to 260 today. If we get more selling tomorrow....then it will move him further into the hole. What many option players do to prevent a catastophic meltdown of risk capital on selling puts is to BUY a protective hedge put (1 for 1 or a ratio, like .5 to 1...) long for just such a circumstance as he's in now. You give up some of your premium, but you're got downside protection. If JDSU continues to fall for another 10%, being short 260 puts is gonna hurt. Sure....eventually if you BELIEVE in the stock long (as we all do....) you will get it back. But that's not the point. You're out a lot of money to cover, or it costs you money and commissions to roll em, with the risk being reduced but not eliminated. As someone cautioned me the other day when I elaborated on the buying of OCLI as a cheaper way to buy JDSU....... Just know the risks. In this case.....it's selling naked puts. There are a lot of newbies that don't know or understand the risks of options, or in last week's case: arbitrage. Steve