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

To: JC Jaros who wrote (39521)	12/19/2000 11:40:02 PM
From: Prognosticator	Read Replies (2) \| Respond to of 64865

Hi JC: I'll have a shot at this, but realize I really don't know much about options trading, other than the fundamentals. IMO, the simplest (low maintenance) thing to do would be to buy some July, 2001 calls (there are no options in June). The only question to answer is how many and what strike-price. Suppose that at expiration in June, the stock hits $53 (double todays close) and takes some meandering path there. But all you care about is the price at expiration. If you bought 10x$30 contracts today, you'd pay $6250 now, and then you could sell the contract just before expiration, and pocket roughly $23,000 ($53-$30)1000, giving a net profit of $16,750. Or you could exercise the call, plunk down $30,000 ($301000 shares), and end up pretty much where you would have been if you just bought the stock outright now, and it went the same route, except that you also spent the call premium. But 'your downside risk is limited' with calls, i.e. the worst they can go to is $0 i.e. expire worthless (and they often do), whereas if you buy 1000 shares, and it drops to below $20, then you'll lose more (on paper). Where options are dangerous is they give you leverage. Say I have $30,000 to spend, so I could (a) buy 1000 shares (or there abouts), or (b) buy 50 <edit: in the first pass I mistakenly said 5 contracts, duh> call contracts for about the same amount. If the stock ends up at $53 with method (a) you gain $23,000. Method (b), and selling the calls before expiration, your gain would be $23*5000 -$30000 = $85,000. Bigger profit, but bigger risk, your options could expire worthless. Myself, I buy no more puts or calls than I would be happy to buy stock. It keeps me sane, and limits the loss. As toscano said: when you buy an option, you mentally mark that money as 'lost and gone forever', that helps you keep things in proportion. All of this is my opinion only, and should not be used as investment advice. If I got anything wrong, I'm sure twister will point it out. P.

To: JC Jaros who wrote (39521)	12/20/2000 12:04:35 AM
From: rudedog	Respond to of 64865

JC - here's another play. Since you would be willing to buy SUNW on margin today, you could sell Jan puts and use your margin to back the sale - you won't take a hit unless the stock is put to you, and then it will be the same or less than if you bought the stock today. Say you want to buy 1000 shares today on margin. Instead, you sell 10 contracts of Jan 27.5 puts, generating $3,750, and if the stock is put to you, you are effectively getting the stock for 23 1/16... If not, keep the premium and sell the next month's puts at another out of the money strike. But you also want to place a bet that the stock will double by June, and if you also believe it will not go to 23 in January, you will not be put the stock. So you also buy June calls. June 35s are 4 5/8, so 10 contracts (1000 shares) will cost you $4,625. If the stock doubles (i.e. 52 and change), you will probably see those calls go to 18 or more. You make the put premiums along the way, maybe $3K a month if you are aggressive, and you make about $14K on the calls. Your risk is the call premium, plus the risk that you will buy against the puts (which was about the same cost as buying on margin to start with). Your gain is potentially around $30K, more than you would make buying the stock and without tying up capital. Spreads are more conservative and more predictable but have less gain. For example, a bull put spread is where you buy a lower strike price put, and at the same time sell a higher strike price put of the same month. Your loss is limited to the difference between the two strike prices minus the net premium received, but your gain is also limited to the net premium received. The bull call spread is similar - you buy a lower strike price call, and sell a higher strike price call of the same month. Your gain is the difference between the two strike prices minus the net premium paid. One of my favorite sites for general options strategy is the stock exchange of hong kong - sehk.com.hk good examples and not too much jargon. And I would reinforce what others have said - options are higher risk than equities, the dynamics are different, and it is a good idea to do paper trades and see how your "gut feel" develops before jumping in for real. Also I'm just an engineer so follow any of my suggestions at your great peril.

To: JC Jaros who wrote (39521)	12/20/2000 1:15:20 AM
From: hobo	Respond to of 64865

Buying calls is perhaps a "simpler" strategy However, understand that options are "dying assets" the time decay accelerates as as you approach expiration. The last 2 weeks or so this process is more dramatic as to how they lose value. This means you have to be accurate in your predictions as to where the stock will be at a specific moment in time. As a seller (be this of calls or puts), while greater risk does exists than as a buyer (of puts and calls), the time decay works in your favor. An indicator that will assists you a great deal in the timing of when to sell (or buy if you prefer) is Bollinger Bands. Learning to use BB will be of great value when you combine it with options. Here is a site that may help you understand BB: bollingerbands.com coveredcalls.com equis.com e-analytics.com Personally I resist to buy options unless I am fairly convinced the stock will move my way and in that case what I do is buy deep out of the money calls, that way they are cheap. If the stock does move my way and approaches my chosen strike price the return can be considerable.