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

To: Poet who wrote (54955)	12/18/1999 3:47:00 PM
From: Jill	Respond to of 152472

Poet, I know PAL will elucidate this really well--but anyway, from my limited perspective: the most bullish strategy is to buy calls and sell puts at the same time. Especially doing so when the stock drops or is oversold, easily done with a volatile stock like Q. One problem of course is that puts require margin collateral, and some on this thread might consider it more bullish to have simply bought as many calls as possible even on margin and maximized return that way. I tend not to use margin, maybe just from hearing horror stories last time Naz tanked, and many got margin calls. Therefore, if you have some free margin collateral sitting around, why not make use of it selling puts? So, on a "down" oversold day, when you would jump on calls, you might also sell puts. The best idea is to sell below the recent trading range, and I suppose that's something you have to determine yourself, as people look at trading ranges over different periods and you're still just playing a hunch, as you can never predict the market. But for example the other day when JDSU was a falling knife, I sold Jan 190s. The premiums are always good on these volatile stocks. I didn't catch JDSu at the bottom--it was somewhere in the m id 230s when I did so--but anyway, I got a good premium and at the very least I'm almost certain to pocket it by options expiry in Jan. If JDSU makes a huge runup and the puts decay to the point where they're hardly worth anything, I would buy them back to free up my margin collateral. One of the amazing things PAL does is figure out a strategy that is always in concert with something else--i.e. finance taxable income now with put selling in April. My mind can't hold that kind of complexity yet! Some on SI consider put selling too risky as theoretically you could be put a stock that become worthless right before your eyes. It is theoretically possible but you basically have to trust yourself as an investor, that you are selling puts in a company that is so good that at worst case you'd want to own it anyway. Selling puts is also a good strategy for accumulating stock at cheaper prices than current market--but I've never done that. In such case you'd pick a strike price that was close enough to the trading range that there'd be a good chance you were put the stock on options expiry. You can't make as much selling puts as you can buying calls on an oversold day with a stock that is about to skyrocket. On the other hand, there aren't so many opportunities like that, and besides, you can combine the strategies and make even more $. However, whenever you do it please calculate worst case conditions so that you have enough buffer zone of margin collateral to ride through volatility. The exchanges have 3 formulas for calculating margin held against puts, and they basically pick the most expensive one. Even if your stock skyrockets and your put decays to barely nothing, they will use a formula that holds a lot of margin collateral--I think they ust basei t on the stock price at that point. That's strange because obviously your risk has gone way down, and theoreticlaly they are holding the margin so that you're able to buy the stocks if put to you, so it's uspposed to be to reduce your and their risk. There has been talk from time to time about changing those old-fashioned rules but it ain't happening any time soon. People on SI who are very experienced at selling puts include, first and foremost, Edamo; Don Martini used to do it a lot on the DELL thread; Teflon as well. And of course PAL. I'm sure they'd be glad to offer advice by PM as well. Jill