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Technology Stocks : Full Disclosure Trading -- Ignore unavailable to you. Want to Upgrade?

To: Jacob Snyder who wrote (185)	4/12/2002 6:37:25 PM
From: Sam Citron	Respond to of 13403

OT Jacob, I am no authority on margin. In fact, I have only borrowed money very rarely. But this is my understanding, and I will be most grateful if you can disabuse me of it. Your margin buying power consists of all cash balances plus 50% of the value of stocks held, as long as they are worth at least $5 per share. Surplus margin buying power is a use-it-or-lose-it item. It pays no interest other than the paltry interest collected these days on cash balances that are swept into the money market fund. Selling a put, even a naked one, results in an immediate credit to your cash account. This is real cash that generates real income, even at today's paltry ST interest rate. It certainly does use some of your available margin buying power, as you hold a reserve to buy at the strike price, but it is not an actual loan and you pay no interest unless and until it exceeds the cash balance in your account. Hence, a major difference between selling the puts and buying the <$5 stock outright is that the put sale generates, rather than consumes, cash. And this cash generates interest and more buying power, for when you eventually need it. And, of course, the at-the-money put write pays you a nice 25% time premium for agreeing to support the stock at a net price that compensates you for some potential buyers remorse in case your timing isn't perfect, while awaiting the eventual turnaround of the optical networking sector. Sam