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

To: JC Jaros who wrote (39514)	12/19/2000 10:37:55 PM
From: hobo	Read Replies (1) \| Respond to of 64865

So, if an options novice straight ahead believes SUNW will be x2 on or before JULY expiry, his best bet might be what, in your opinion? The following is strictly my opinion. I have no idea what your particular details are in terms of assets, size of portfolio, tolerance for risk and willingness to speculate. The first thing you need to understand about speculating is that the funds you do it with you should consider them lost. (i.e. gone to money heaven). Second you should speculate with the most advantage on your favor (who said it is a fair world?). So... having said that... What I would do is this: 1. NO margin. 2. I would SELL Cash covered puts, (and if I feel cocky) about SUNW prospects, I would go and sell NAKED puts instead. To sell naked puts you will be required by your broker to have certain cash in the account as "option requirement" (similar to a "performance bond), and be approved to trade them. A Cash covered put may not need your broker approval since you are placing the cash in the account for the obligation to purchase of the amount of shares you are contracting in your put options contract. You should know that one put option contract represents 100 shares, so 10 contracts represent 1,000 shares. This means I am contracting the obligation to BUY a specific amount of shares of SUNW at the chosen strike price by the time expiration comes. Now... Say that by June 2001 you think that SUNW will be @ $54.00(double today's $27.00). Assume (on average) it will leap $ 5.00 per month to get there. 5 x 6 = 30 plus the current 27 = 57 (plus minus) Here are closing prices for all the puts and calls on SUNW (including Leaps --long term --up to 2 years-- Options) quote.cboe.com So I would sell 10 contracts of the near month (JAN/01 strike 27.5) for $3.625 This would credit my account $3,625.00 (for 10 contracts, or 1,000 shares). This also means that if SUNW closes ABOVE 27.5 by Jan expiration (Jan 20-2001) the put option would expire worthless and I keep the $3,625.00 (on NO money invested). If however, SUNW were to close at or below $27.5 I would then be OBLIGATED to buy SUNW @ 27.5 REGARDLESS at what price it closes (it could be $20.00) the premium of $3,625 is mine to keep as 100 % profit minus commissions. The next month... (February, I would do the same. keeping the appropriate proportions.) If I were not "put" the shares, I would sell another put. If say... that by January you ARE put the shares (forced to buy). You could either add to your existing portfolio or buy back the contract and terminate your obligation. The purchase of your obligation (put contract) could be at a profit or loss it depends on the premium received and how much "in the money" the put is. Once you are put the shares, you could SELL covered calls on the same shares that you now own. Premiums (strike price $30.00 will be around 2.5 per share (so for 1,000 shares), you receive $2,500.00 If the share price would go past the strike price you will forgo such advance. but you still keep the 2,500.00 if called away, then you would do this whole program again. Every monthly until you reach your desired objectives. In the above scenario you would receive a total of $3,625 + 2,500 = $ 6,125.00 In the real world it may not be this smooth since there is something called slippage (the loss of bids/ask values while you are placing the orders). In this scenario you delay the output of your investment but you receive the premiums stated WITHOUT any actual outlay of capital Having sold the call, the danger exists that you will be assigned and receive only the premium plus profit up to the strike price. Then the next month you would do the same. Yes more time spent managing these positions, but potentially more rewarding... NOT necessarily simple either, however once understood... not that difficult. All of the above assumes a bullish scenario based on the strong fundamentals of what you know about the company. AGAIN.... MY OPINION ONLY MAKE YOUR OWN DECISIONS

To: JC Jaros who wrote (39514)	12/20/2000 1:16:58 PM
From: contrarios	Read Replies (1) \| Respond to of 64865

JC, You might want to consider a Bull Call Spread on the Jan '03 SUNW LEAPS. You can limit your risk using this strategy and increase your gains. For example, buy the SUNW Jan '03 35 Calls, sell the SUNW Jan '03 50 Calls for a debit of about 3 1/2. The Jan '03 35 Calls will increase at a faster rate than the 50 Calls as the price of SUNW increases. If, in Jan '03 or before, SUNW trades above 50, your spread will be worth up to 15. That's over 400% gain. Your downside is also protected by the short Jan '03 50 Calls. If SUNW price falls, both option values fall but your spread price falls at a slower rate than if you had straight calls. Other spreads higher up the strike price can be placed for less debit giving a much higher % gain but the stock has to reach a higher strike to attain those gains. You get two years to be successful on this trade and your breakeven is 38 1/2 for SUNW in Jan '03. So you have to ask yourself, will SUNW be over 38 1/2 in two years? Will it be over 50 in two years? Personally, I'd make this trade. The risk to reward is very good. This is the safest way to play options. Vinnie