To: KM who wrote (33109 ) 10/23/1997 2:17:00 PM From: Brent D. Beal Respond to
Here's my rationale. At first when I started playing IOM, I thought that every run would be straight shot to about $50 a share. Invariably I would by an option, the stock would go up and I'd be sitting on a 50-60% profit, at which point I'd jump up and down a little and start envisioning how much more money I was going to make when once the stock had gone up another 5 points. And almost invariably, the stock would drift lower and I'd either get out with little or no profit, or, as I did on several occasions, I'd hold all the way down and then all the way back up on the other side when the stock moved back up again. I remember about 5 months ago I bought an option for about $2, sat on it down to about 1/4 and then rode it back up to nearly $2 right before it expired. Here is what I think the key to playing IOM is: IOM is owned by a lot individual investors, many of which trade in and out of the stock. In addition, the stock, although gaining respect, isn't quite there yet, and, believe it or not, in many people's minds, IOM is a speculative and rather risky investment. Given this situation, IOM is going to zip and zag, with an upward bias as it advances towards new highs. I believe that ups and downs will compress, with shallower and shorter troughs as respect for the stock grows and as investors gain confidence in the company and the fact that the stock isn't going to drop 30% overnight. Therefore, I'll jump back in sooner on pullbacks and will weight a little longer on the moves up as we progress. As far as options go, if you notice, out-of-the-money calls are still fairly cheap, simply because no one believes that IOM is going to $35+ in a hurry. Again as the stock garners respect, the upward moves will be more sustained and the spikes will be higher. I think there is opportunity to make money on these out-of-the-money calls by buying them when nobody else will. If we get a pull-back into the 27s, which I think is entirely possible, for example, I bet the Nov35s will be going for an 1/8--if they are I'll buy a bunch, along with some of the Nov30s. I think that it's almost a given that IOM will make a run into the low 30s before or during Comdex, and a run into that price range will mean a 200 or 300% gain, in the Nov35s, which might be going for as much as 1/2 at that point. The danger in all of this is that I miss a run, but, like Peter Lynch says, money you don't make should never be viewed as a loss--opportunities always abound, so there's always a train to catch.
