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Technology Stocks : Novell (NOVL) dirt cheap, good buy? -- Ignore unavailable to you. Want to Upgrade?

To: David O'Berry who wrote (29750)	1/4/2000 12:05:00 AM
From: Paul Fiondella	Read Replies (2) \| Respond to of 42771

Limiting the downside by buying puts The problem is they are expensive. So you have to buy them well out of the money usually. But using today's close of 38 and a strike let's take the example of 35 which is almost in the money. Let's say you anticipate that something bad will happen in the market between now and the end of March when NOVL traditionally hits its annual high. You go out and buy a May 35 put for $5 1/2 a share. This means that you have locked in a $29 1/2 a share price. No matter how far the stock drops you pocket $29 1/2. If the stock goes up to 60 you only make 54 1/2. Not bad but still $5 1/2 points sacrificed for insurance to about May 18th. But if you sold the $35 call for May at $8 7/8 you would then have locked in the best situation for protection to the downside since you would pocket that premium too. If the stock hit 20 at expiration you would deliver your stock at 35 and pocket the additional $8 7/8ths which when you do the math means you sold the stock at $38 3/8ths after option costs. However on the upside if the stock closed at 60 you would never get more than $38 3/8's. In Scott's Bearish case however in my opinion buying the PUT with the money from selling the CALL and holding the stock is probably the best strategy. Please run this by your professional advisor first!!! This is just discussion of options not advice to do anything. Whew!