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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Cary Salsberg who wrote (43252)	3/6/2001 11:03:33 PM
From: Sam Citron	Read Replies (1) \| Respond to of 70976

Cary, Lets assume that you are correct about the two scenarios and that there is a 50% probability of "Pay Me Now" and a 50% probability of "Pay Me Later". Under "Pay Me Now" you get to buy AMAT at an average cost of $30 this year. OTOH, it is not certain what will happen to the $40 Jan '03 puts that I have sold. The puts could easily go 10 to 15 points into the money and still not be exercised with over a year of time premium built into them. If they are exercised, I am in nearly the same position as you: I get my AMAT at a net cost of $40 - $9 premium = $31. If my puts are not exercised then I keep the $9 premium and I can still buy shares outright as can you. I can not see how I am worse off under this scenario. Under the "Pay Me Later" scenario, the upcycle resumes in 3Q01 with AMAT rising to between 90 and 113 during 2002 followed by a decline to 25 in mid 2003. If this should occur, selling the puts will put me $9 ahead of the game. Either the puts expire worthless in Jan '03 or I get my stock at $31, unless I decide to buy them back for pennies when they are 50-60 points out of the money. Therefore, I believe I am no worse off under the first scenario but considerably better off under the second by selling the puts. I do not see how your previous comment ("I want to wind up with stock not LEAPS. I don't want the additional problem of timing.") applies. Having sold the LEAPS, I end up with the cash in my pocket for the insurance policy that I have sold. If the shares are not put to me, I can still buy them. There is no additional problem of timing with the puts. As long as I am perfectly content buying the stock at $31, I can relax knowing that no worse fate awaits. If I have misunderstood or my reasoning is either unclear or faulty, please so advise. Sam