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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: cyesp who wrote (43908)	5/11/2005 9:28:58 PM
From: kodiak_bull	Respond to of 206093

Cy, Since you first asked about XLE (I believe I threw a little cold water on your excitement-"salivating" is how you described it), XLE has performed as I thought it might. It has fallen. Put this into the 50 contracts of XLE Jan 40 calls that we are now discussing, on 4/25 when XLE closed at $42.63, those 50 contracts were worth $7.25, or $36,250. Today, just 13 days later, they're worth $6.30, or $31,500, a haircut (if you bought then) or a discount (if you waited) of $4,750. 15%. That's a 13 day return to the speculator who has had the patience to recognize a downtrending chart; it's the punishment meted out to someone who was too anxious to buy. If XLE sees $38, as I have shown, those calls will be priced at $4.50 or so, the 50 contracts at $22,500. Let's put it another way. Let's say you have $40,000 cash you want to allocate to an XLE Leaps play and you think it will trade at $60 (Leap worth $20 plus a little) by December 2006. You can have bought on 4/25 ($7.25), today ($6.40), at $38 in the nearish term ($4.50) or at $36.50 ($3.70) which is also a nearish/intermediate term possibility. What effect would pricing your entry have on your results? 1. $7.25 buys 55 contracts, grosses $110,000, 175% return. 2. $6.40 buys 62 contracts, grosses $124,000, 210% return. 1. $4.50 buys 89 contracts, grosses $178,000, 345% return. 2. $3.70 buys 108 contracts, grosses $216,000, 440% return. This "temporary depression" of prices you refer to can be the difference between taking a risky speculation and having it return 175% over a 2 year period and having it return 440% over the same period. Not chump change, by any stretch. Kb