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Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: zTrader_77 who wrote (931)	12/6/1997 3:16:00 PM
From: Oeconomicus	Read Replies (1) \| Respond to of 164684

Kirby, the advantages are as follows: leverage, leverage, leverage. Just kidding, but only a little. Seriously though with the stock around $55 now, for $4m or so, you can buy 10 Jan 50 puts, controlling 1000 shares. To short 1000 shares, you have to put up a boat load of cash. Time passing with no movement or upward movement would wipe you out, but a move back to $50 or so in the next week would probably generate a gain of 50% or so as the option price rises. You see, unless you are getting too close to expiration or you're trading deep in the money options, the gains can be substantial without the option ever being in the money. It wouldn't be wise, of course, to put as much money into an option as you might in the underlying stock as the risk of losing the entire sum is much greater in the option. But it's also a whole lot easier to buy a put that short a stock like AMZN where the float is thin and shares are difficult to borrow. The other commonly sited advantage to puts over shorts is that the potential loss on a short position is theoretically unlimited. Bob

To: zTrader_77 who wrote (931)	12/8/1997 12:29:00 AM
From: Bilow	Read Replies (1) \| Respond to of 164684

I think you understand the many risks and few benefits of options. I treat it as a form of gambling. But for the sake of those thinking about getting into options, I'll list the disadvantages of being on the long side: (1) Huge spreads (i.e. differences between bid and ask). (2) Time premium decays. Like you say, under normal conditions, if the stock price stays the same, the prices of options go down. (3) If the implied volatility goes down (and it has gone down recently) the options go down in price. (4) The stock price could go against you. (5) Even when everything goes for you, your gains will probably be less than you (naievely) think. This is cause of the above reasons plus the fact that as your option goes deeper into the money (good for you), it commands a smaller time premium (bad for you). (6) They can be addicting, as any form of gambling, (or the stock market in general). Only a couple advantages: (1) Your loss is limited to the amount of money you gambled. (2) You have the advantage of leverage. (3) While the commissions are higher than stock trades, they are generally a relatively minor expense, given the leverage. This is true only if you use a discount broker and gamble reasonably large sums. Say $2000 each trade. Best of luck, a much more important part of options than shorts, but probably useful all through the stock market. -- Carl