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

To: Jerome who wrote (55598)	11/14/2001 8:35:11 PM
From: Math Junkie	Read Replies (1) \| Respond to of 70976

Eight per cent in one month is pretty darn good. Of course, you lose liquidity if the stock goes down significantly, as you don't know how long it would take to get back up to break even.

To: Jerome who wrote (55598)	11/14/2001 11:07:09 PM
From: Jacob Snyder	Respond to of 70976

re: AMAT one month play: Interesting. Could I get you to say what you'd do in various scenarios? (and why?) 1. What's the endgame? Do you just keep selling nearterm at-the-money covered calls until you get called? 2. I agree, near the end of the year, it makes sense to sell a bit longer-term calls, so when they (hopefully) expire worthless, the cap gains are next year. 3. If you get paid 8%/month, that's great, as long as the stock doesn't go down by more than 8%. But 8% dips happen a lot, since this is a volatile stock, in a Bear Market (still?). So, what do you do if the stock is down a lot, when the covered call expires? Sell another covered call? At the old (higher) strike price, or an at-the-money (= lower) strike price? If you sell a lower-strike price call now, doesn't this guarantee you won't recoup your losses from the last play? 4. At-the-money calls will go up by about $0.50-0.60 for each dollar the stock goes up. So you won't lose money. But you do give up a lot of the upside. And, notice, you are not getting protected by a proportionate amount on the downside. Work it out. If the stock goes up by 25%, you make a smaller %, than the % you're down if the stock goes down 25%. And 25% moves in a month is normal volatility for AMAT. I think you've got something here, but I haven't thought through all the possible outcomes.

To: Jerome who wrote (55598)	11/15/2001 8:39:26 AM
From: Alastair McIntosh	Respond to of 70976

Jerome, thanks for the explanation. I did not understand from your first post that you were suggesting a covered call play. I often do covered call plays but I look for higher volatility. For example three weeks ago I bought ONIS at 5.20 and sold the Dec 5 calls for 1.20. This gives me a 25% return in two months if ONIS closes at $5 or over at expiry. I only lose If ONIS closes below $4. I am happy to own it there and would double up at $3. I would not do a CC play on AMAT as I am of the opinion that it is making a medium term cyclical high (could return to low 30's), exactly the wrong timing in my opinion. One should only do CC's on stocks that you would be happy owning if the price falls below your cost basis. Of course if you are a long term holder of AMAT selling calls when you think there is a short term top in the price can be a great way to boost your returns. If anyone is interested, here is a great site for finding high yield CC plays: movak.com Regards, Al