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Technology Stocks : Ascend Communications (ASND) -- Ignore unavailable to you. Want to Upgrade?

To: pass pass who wrote (23662)	11/16/1997 1:07:00 PM
From: Harry Ehrlich	Respond to of 61433

What do you do when the stock that you just sold...came roaring back That is the classsic question that is always asked with regard to limiting losses. There is a classic answer. Limiting your losses is like paying insurance on your account. You take the loss to insure that you don't get wiped out. Wm O'Neil addresses this beautifully. You bought insurance on your house this year, right? It didn't burn down. Will you buy insurance again next year? Of course you will. By limiting your losses, you are still around to re-enter when (if) the stock comes roaring back. You make a good point about tech stocks having a high daily range, but I think 10% is high for a daily range. Most $50 stocks don't range $5 daily, although it does happen. O'Neil does give leighway for volatile stocks, as his typical limit is 7% to 8%. You may set any limit you wish, as long as you set a limit and adhere to it. The number you pick will depend on how risk tolerant you are. For Nasdaq stocks, I vary from 8% to 12% depending on the stock and surrounding issues. My lesson is: Don't use too much margin and always have 12 months cash reserve no matter how badly you want to average down. Excellent points. I absolutely agree. By the way, O'Neil says to never average down; why throw good money after bad? If you want to repair the damage by averaging down and lowering your breakeven point, you can always do the same thing with options. You can buy 1 at the money call for every hundred shares you own and sell 2 out of the money calls. All your calls are covered, and the transaction is basically free. You've limited your upside, but a modest rise in the stock price will break you even, without the stock going back to where you bought it at. See the options section of December's Bloomberg for complete details. Harry