Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : General Magic -- Ignore unavailable to you. Want to Upgrade?

To: Joseph H. Leiti who wrote (7462)	12/14/1999 2:12:00 PM
From: John Madarasz	Respond to of 10081

Joe...nice play and call... from RB board: An option play on GMGC ? I have read the posts on this board and appreciate the information but have not contributed much. For what it is worth those who want to consider options should look at the February 5 put options which seem to be over priced especially if you are bullish on the stock. The Feb 5 put information as of market close December 13th is: Bid ? 2; Ask - 2 3/16; Vol ? 800; Open Interest - 40486 The stock went up slightly for the day and for some reason the put also went up ?This means that a lot of option traders are betting that the stock will go down so that they make money on their put purchases. Taking the other side and selling say 10 puts at 2 will result in (all less commissions): Premium of 2000 At the closing date of February 19th I calculate the following: Breakeven stock price of 3 ? below 3 you lose money Profit at current price of 4 « approximately 1500 (about 38% or 210% annualized) At stock price of 5 or higher the option expires worthless and you keep the entire premium of 2000 (about 65% or 360% annualized) These high returns indicate that there is a high risk and a good chance that the buyers of the puts have a very good reason for thinking that the stock price will go down and that they will make money on their purchase. The call options are not nearly so high priced for the condition which again indicates that the smart money is more willing to bet that the stock will go down rather than up (possibly based upon the poor past history of management in not doing well at taking advantage of opportunities). You must be prepared to purchase the stock at 5 on February 19th (or buy back your put before that) even if the stock goes down to 0. That is the risk but if you think like I do that the stock will continue to go up or at least hold it?s own then it is a good return. You may end up keeping the total premium or buying the stock at a net price of 3 plus commissions ? either of which is a good outcome. Of course the advantage of buying the stock outright is that there is no cap on your profits if the stock skyrockets by February 19th. The big negative is that the buyers of the puts might know something that we don?t and are making a good bet that the stock will go down ? they aren?t buying that many puts at that high a price without some conviction that it will go down. Anyway if you see merit in the put sale do your own DD and calculations using your commissions and good luck. Sorry for the long post ? I don?t post often but guess I make up for it in length ragingbull.com Regards, JM