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Technology Stocks : 3Com Corporation (COMS) -- Ignore unavailable to you. Want to Upgrade?

To: Chris Anderson who wrote (10739)	11/23/1997 4:48:00 PM
From: Lost in New York	Read Replies (2) \| Respond to of 45548

I understand puts and I understand "naked" only as it relates to calls, so what is a "synthetic naked put"??? It basically behaves the same as a naked put but is implemented with equity and calls. You can have other "synthetic" things too. For example you can make synthetic stock by going long a call and short a put. Using COMS as an example you can buy 100 shares for $3,500 today. Alternatively you could buy a Jan 1999 35 call for $938 and short a Jan 1999 35 put for $713 for a net debit of $215. Guess what, it would take about $215 to borrow the $3500 at the "risk free" T-bill rate of 5.25% for 14 months. So the synthetic stock has the same carrying costs as regular stock except you get to "borrow" at a better interest rate. The price behaves the same also. For each $1 increase in the stock, the price of the stock obviously goes up a buck, but so do the options. The call has a delta of $0.65 meaning it will go up 65 cents for each dollar movement in the stock and the put has a delta for about -$0.35 or plus 35 cents to you since you're short the put. So whichever way you go there are many similarities between the stock and synthetic stock. The are differences too. They affect margin differently and you don't get voting rights with the options. Voting rights brings a question to my mind. I've got COMS in my margin account. I can vote this stock. My broker lends these shares to Craig who shorts them. Glenn buys the shares from Craig and can also vote them, neither he nor his brokerage knows they're the result of a short sale. Those shares are being voted twice??? Craig can't cast negative votes to offset one of the votes. I really can't figure this on out. Dave Option quotes: cboe.pcquote.com Option calculator (for Delta calculation): cboe.com (COMS volatility is about 61.5%)

To: Chris Anderson who wrote (10739)	11/23/1997 5:36:00 PM
From: Glenn D. Rudolph	Respond to of 45548

Since everyone is trying to clarify everyone else, I'll jump in too! :-)) If Carmine is long the stock, and the stock is volitale, it may fall from $70 to $(fill in worst case scenario here) I'd rather have the $5 of call money in my pocket when it falls. If it's a great stock and you plan on being in a few years and riding out the bumps, why not try and pocket a little call money along the way? This decision really depends on your investing style. Also, if I have 5 or 6 very volitale stocks in my portfolio and write calls on the bunch and only 1 or 2 fall, the call money can really help out. I understand all of the implications about capping your potential gains, though, really hurts to see one fly off when you have a call written on it! I understand puts and I understand "naked" only as it relates to calls, so what is a "synthetic naked put"??? Chris, I explained a synthethic naked put is a covered call. Risk and reward is identical. Premium is identical. Capital is less with a naled put. Establishing the positions requires one trade in place of two. If the stock drops and one wants to own it during the long haul, don't close your naked put. Glenn

To: Chris Anderson who wrote (10739)	11/23/1997 5:46:00 PM
From: Greg Jung	Read Replies (1) \| Respond to of 45548

Beachbumm, Chris If you want to hold stock but then sell the call then your statement by action is, "this stock is full. No more upside for a while". You are also claiming "if this stock begins a free-fall I can wait for it to rebound because it always does, and always will." If you're making a lot of money by writing calls it is because the underlying stock is volatile, which means down as well as up. If the price of the stock drops $5 from $60, a call at strike $60 will drop less than $2. If you can't go naked you would have to buy back those calls before you can sell your stock. And the options auction is much slower than stock, and has high spreads - you have to use limit orders to get any sort of decent price. If you think the market may tank your stock but you are waiting until April or so to qualify it as long-term gain, you can sell an in-the-money call with strike well below the price. This call does get cheaper about as fast as the stock. You are still not protected, because say for Cisco the price could go below that price even more. So you would need to buy puts with proceeds from the calls. Greg