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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: Investor2 who wrote (3308)	11/6/1997 12:10:00 PM
From: Ira Player	Read Replies (2) \| Respond to of 10921

Digital Man and I2, The premiums on options, I believe, are reasonably reflected using the Black-Schloles (Spelling?) methods, when the market is not seriously turbultent. The implied volitility they represent are highter than they were several years ago (or so I've read, I wasn't "in it" then), but so is the real volitility. My concern isn't that the premiums are high, just that the options poor liquidity during short term moves lags the market. As it says in my profile, I'm investigating options for increased leverage. But only for the most confident positions and not routine use. As for writing covered calls, not a bad way to wring a few percent out of a stagnant market. Especially if you can write the call with a decent premium at a price you would consider exiting at anyway;-) A short note on tax issues. If you write a covered call against a stock that is eligible for LT capital gains treatment and it ggoes into the money, don't let it get called. If it gets called, you have a ST gain via the premium and a LT gain at the call price. You pay tax at you marginal tax rate on the ST and 20% on the LT. Instead, sell the stock at market and buy back the calls at a loss. This gives you a ST loss to offset other trading (oops, showing my colors) gains and the entire [market value - basis] is LT gains at the lower rate. You basically save the delta between your marginal rate and the LT Capital Gains rate on the ammount that the option is in the money. Example: You bought a stock at 50 and have held it for 2 years. You sell Nov 80's for a $4.00 premium. Stock moves to $90. You let it get called. You have a ST gain of $4 because of the premium and a LT gain of $30 for the stock. If you sell the stock at $90 and buy back the call at $10 (very near the expiration date) you have a $6 ST loss to offset other gains and a $40 gain that is LT. Assuming you were successfull in other plays <g>, this means $10 moved for ST to LT. If the difference between the ST and LT trate is 10%, you saved $1 per share. All at the cost of an additional transaction fee. Luck to all, Ira