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Technology Stocks : All About Sun Microsystems -- Ignore unavailable to you. Want to Upgrade?

To: Steve Lee who wrote (27048)	1/31/2000 4:15:00 PM
From: rudedog	Read Replies (1) \| Respond to of 64865

Steve - I'm always ready for a lesson in options trading... this despite the fact that I have never had a losing options trade and was up 1700% on my options plays last year... There are of course fluctuations in the premium, reflecting shifts in investor confidence, and also of course the decay of the time value. I have used that to my advantage especially on near term calls. Using LEAPs as a leveraged proxy for the underlying requires a more careful watch on the activity of both the options and the underlying than a straight equity buy would merit. But let's use a real-world example of a stock where investor confidence is pretty solid, but the company has announced several recent shortfalls which have depressed stock price, and see what happened to out of the money LEAPs. DELL ZDEAJ Jan 01 50s were at 9 1/8 on DEc 19, when the stock was at 45 9/16. Today the stock is at 38 9/16, exactly 7 points lower. The ZLEDJ LEAPs are at 4 1/2, a drop of only 4 5/8. So the LEAPs held up better than the underlying despite the decay in the time value, an earnings warning and a 7 point drop in the stock. What was your point again??? If you are saying the LEAPs don't EXACTLY ride the underlying, I would agree. They are after all a derivative instrument with their own market. But in general they work well as a proxy for the underlying if you roll them well before expiration.