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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (14911)	11/21/1997 10:28:00 AM
From: Mark	Read Replies (2) \| Respond to of 50167

Ike & options folks, re: IBM calls - Thanks for your input which I value along with everyone else here. You said "talk loud" to get input from others so here's what I see and I hope people find it useful: I understand the merits of writing the DEC115 calls against the JAN110 since that would decrease the probability of the short calls being exercised (i.e. instead of the DEC110 calls) but I would also sacrifice more premium income unless, as you suggested, I write 1.5 times the number of JAN110 I own. I don't understand where you say the "heavier 110 (jan) will take care of the naked 5 (dec115)" because if, in the odd event the DEC115 were exercised and I had 10 contracts long against the 15 short I would end up needing an extra 500 shares IBM to cover the dec115 call which would not have been covered in premiums. This would be risky for a low-capital investor - can you elaborate? Right now, IBM DEC115 is 3/4 and DEC110 is about $2. Remember, my basis in the JAN110 is 2 5/8 and I already wrote NOV110 for 1/2 reducing that basis even further. Now, I can: a. write 10 DEC115 for each JAN110 I own giving me 3/4. If IBM then goes beyond 110 by DEC expiry I still keep the premiums and the great appreciation in the JAN110. If the stock goes sideways or south, I've only recouped 3/4 of the premium paid for the JAN110 versus $2 in the DEC110. Then I'm left hoping the stock moves to a level that makes the JAN110 profitable before JAN expiry. - or - b. write 10 DEC110 for each JAN110 giving me about $2. If IBM then goes beyond 110 and stays there through DEC expiry I lose the remaining JAN110 basis that I haven't recouped (2 5/8 minus 2 minus the 1/2 for the NOV = net 1/8 loss). If IBM goes south or sideways during DEC then I've reduced my basis in the JAN110 to only 1/8. -or- c. sell the JAN110 today for about 3 5/8 ($1 profit or $1.5 considering the NOV110 premiums). "Ideas" anyone? Happy trades, mark