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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Art Bechhoefer who wrote (128922)	5/12/2003 10:39:47 AM
From: Uncle Frank	Read Replies (1) \| Respond to of 152472

You should have very bullish expectations for the underlying stock when writing puts, just as you should if you were buying calls. If you feel that strongly, going long the call would offer leverage. Personally, I think this is the wrong market and wrong time of the year for such a play, but wdik. uf

To: Art Bechhoefer who wrote (128922)	5/12/2003 11:44:55 AM
From: Wyätt Gwyön	Respond to of 152472

The current out-of-favor sentiment toward QCOM could create an interesting option play for the upside short puts i wouldn't really call an "upside play"--more of an anything-but-down play. with short puts you have all of the downside of common (minus the premium), with none of the upside beyond the strike plus time premium. short puts have probably gotten more people into trouble than any type of option (save the short QCOM calls which supposedly gave the market makers a hard time in late 1999 :). back in the 80s everybody sold puts on the SPX and thought it was free money. then the index tanked and a lot of people went bankrupt. since then the regulations on who can sell puts have been tightened considerably. still people can get into trouble. in terms of the actual profit/loss curve, a short put is basically the same as a buy-write; i.e., a covered call. however, there is a significantly smaller margin requirement for a short put than for a buy-write (most short puts are written in margin accounts, except for a few places that let you do cash-covered short puts in a cash acct, in which case the scenario is the same as for buy-writes, other than differences in commissions and spreads). due to the smaller margin requirement on short puts, there is the potential for people to get into big trouble with them. therefore, anybody who does not even understand the basics of how they work has no business writing them. Suppose an investor sold put options (i.e., write a put) with a striking price of 35 and expiration in July. If the stock reaches or exceeds 35 by the expiration date, July 18, the investor will pocket the proceeds from the put sale. If the stock fails to reach 35 by expiration day and the investor continues holding the put options, the shares will be "put" to the investor at 35, but the net purchase price will be less than the current market price today. your gains will be capped at 35 plus the time premium. so the question to ask yourself is, would you buy QCOM right now and immediately sell covered calls with a 35 strike against your QCOM holdings? because that would put you in a similar position to somebody selling short puts. if you look at it that way, you may say why would i want to cap my gains at 35, especially as QCOM has been rather weak lately. if that is your attitude against selling covered calls, then why should it be any different regarding selling puts? PS. some people do indeed have a different attitudes regarding these two setups. the attitude arises from the fact that the short-put scenario requires less margin, as opposed to any inherent difference in the outcome of the two strategies. this kind of attitude is what i think of as "a good way to get a margin call". however i recognize that you, Art, are really suggesting a discounted way to buy the stock from an investor's perspective. which is fine, but as i said, the situation is the same as doing a buy-write, so it may be wise to ask yourself if you would have the same attitude toward doing a buy-write. all jmho!

To: Art Bechhoefer who wrote (128922)	5/12/2003 2:31:06 PM
From: Stock Farmer	Read Replies (1) \| Respond to of 152472

You should have exactly the same expectations with a short put as for a long-stock, short call ("covered call"). The latter is also known as a "synthetic put" because on a total position basis it is equivalent in risk/return to a naked put with the same level of capital commitment. Check it out for yourself. Stock at $31.05, JUL 35 short put premium $4.70, short call premium $0.83 Work out your total net worth in the two cases (a) stock closes above $35, and (b) stock closes below $35. When you include interest at 3%/year on capital held in reserve and premiums, the naked put is slightly more efficient than a buy-write. Cheers, John