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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Terry Maloney who wrote (79211)	4/8/2000 10:49:00 AM
From: Knighty Tin	Read Replies (2) \| Respond to of 132070

Terry, Most of it is valuation, but there is a lot of gut feeling that goes into the process. I like to buy my first third of puts when a stock is 50% overpriced, second at 75% overpriced and third at 100% overpriced. This overpricing is relative to the market and peers, which keeps me from owning full positions on every tech stock in the world. <g> I rarely fill put positions on the way down, though I do roll part or all of my current position down, out or both. I almost never buy them on flat performance, but my favorite technique is to buy more as the stock moves up to my valuation levels. Sometimes the valuation changes for a reason. For example, Ancor's valuation went up when they announced the Sun deal and Vaso's went up when they got Medicare approval. However, most of my put choices have no decent fundamentals, so the valuation is likely to move down. Which strikes and exercise dates for second and last thirds depends as much on the premiums and when I expect news to hit as it does the stock price. I will usually add at a higher strike price and perhaps further out in time, but sometimes I add more of what I have or even scoot down to a lower strike price for more homerun potential. The thing that I have found after decades of doing this is that a mere one third position in a homerun stock is incredibly profitable. For example, one third of ISSI at $73 on its way to single digits was profitable enough that I didn't need a second third, which I had at a lower strike price, or a third third, which I never bought. But I want to have the cash to keep in the game if the bubbleheads keep overpaying for a POS stock. Yes, I could take more than a full position, but that isn't part of my discipline. That way, one that runs against me, as Rambus did, has still been a profitable play over the past couple of years. When I have lost, I have lost thirds. When I have won, I have gotten triple and doubles and quadruples on those thirds. Admittedly, I've been incredibly wrong about the stock. But, since I've been right about the co., I am able to keep playing it until the stock and the co. move into the same dimension.