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Pastimes : Play It On Paper- Clappy's Newbie Option Thread -- Ignore unavailable to you. Want to Upgrade?

To: Clappy who wrote (39)	7/23/2000 1:22:33 PM
From: Jill	Read Replies (1) \| Respond to of 176

You might consider stlw. CaTechTrader gave it a plug on the porch, and Options Jerry has gone long some Sept calls; it's up about 15 (to 49) this week, but it may have a way to run. Jill

To: Clappy who wrote (39)	7/23/2000 4:26:51 PM
From: hlsjones	Read Replies (2) \| Respond to of 176

clappy In regards to your comments/questions. (1) Yes, as far in of the money as you can get and as far out as possible. This way you have plenty of time, in the LEAPS, to recover if the market goes south. Look at history. The market always recovers and a bear lasts only about a forth as long as a bull. Lately the bear lasts maybe a few days if you use the classic definition. I don't look for "just any" ITM call with a cost of ownership of less than $ .25/month. Since I'm long the LEAPS, I want issues that I might really want to keep in the long run. As an example, I've got 10 Dell 01JAN17.50s that I've sold calls on a number of times. The basis on the LEAPS is now down to about $10 so If I exercise I get the Dell stock for $27.50 total. That's almost 100%. What I'm planning (I've got the orders in) is to sell 5 outright at $40 and use the cash to exercise the other 5. The net result is I own another 500 shares of Dell for FREE. I have not owned this set of LEAPS for two years until the last week of August. As I see it that's creating over $25,000 of real wealth in a little less than 2 years from - - nothing. Cool, huh? (2)Yes - but this way you don't need to find a broker with available stock to short. (3)Not really out of the money "above your Magic Number" which, in effect would force you OTM. Remember, if you get called out the first month you need to recoup all of the extrinsic(time) premium. In the INTC example that would need to be the 85s since the Magic Number was $84.25. Since the stock was at $79.25 it kinda depends on what you mean by "slightly out of the money". 85s are $.75 OTM but if you got called you could only be profitable if you got $6 or better since you have some brokerage to figure here. On INTC that may not be a problem a 3 or 4 week out expiration, up $.75 might bring that much but other issues might not. Take the lower premium and move out a couple of strikes to stay above the Magic Number (remember the Magic Number goes down every time you sell a call that expires worthless). What I really did with INTC was to sell the JUL100s for $10.125. That way I was $15 over my Magic Number and, with the call premium, I got a total of $25.125 (if I'm called) with a total "out of pocket of $44.125(54.25-10.125). You do the math 25.125/44.125. What's the return. Yeah, you got to divide the return by 6 cause I sold the July's but that's still right at 9.5%/month on my $44.125 investment. Even if I'm not called it's still 3.8%/month (10.125/44.125). Try and get that return at the bank. And I get the "Interest"(the call premium)up front! Was I right about INTC - ever so. Could it go up $5 in 24 months? Went up $30 in about 4 weeks! The proof of the pudding just passed last Friday. Was INTC above $100? One other thing, I didn't wait till last Friday. INTC went up so fast that I bought back the JUL100s and sold the LEAPS on March 2 to close the position. I actually opened my real position on Jan 5 so that's a little less than two months. I had to pay $23.875 to buy back the calls I sold for $10.125 but INTC had run up so much It didn't matter. What did matter is that while my gross $ gain went down from $23/share to about $18/share the time was cut by two- thirds making my return on investment almost 22% per month. Sure wish I had put more money in this one! I know I ramble some here and there and I may be a little disjointed, but man, this kind of stuff really excites me. If I had only learned this stuff about 30 years ago!!!! If you have any more questions, throw them at me. The only way we can get better is to pick at these methods and if we can't find flaws - use'em to make MONEY! Harry