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To: Michael M. Cubrilo who wrote (1355)	1/25/1998 3:34:00 PM
From: Mr Metals	Respond to of 3650

Hi Michael Challenge: You believe that the stock market cannot continue its recent rise and is due for a short-term correction. You would like to protect some of the gains you have made in your portfolio during this volatile period. Solution: Buying a DJX put option. Purchasing a put is the simplest option strategy for investors who expect a market decline. There is substantial profit potential with this strategy. Profit increases as the index falls below the break-even point - the point at which the DJX equals the put strike price less the premium paid. The risks in put buying are known in advance. Losses are limited to the cost of the option no matter how far the index moves above the break-even point. If you expect a market correction, there is a DJX put option strategy for you. Buy put example: Suppose the DJIA is at 7505. DJX is based on 1/100th of the DJIA, so the options index value would be at 75.05. As shown in the table, you could purchase five 6-month put options with a strike price of 75.00. Each premium point is multiplied by $100 to determine total cost. Therefore, if you paid a price of 3, you have paid $1,500 for five contracts (3 x 5 x $100 = $1,500). To make a profit, the DJX must fall below a break-even point of 72.00 (75.00 - 3.0 = 72.00). If the DJIA falls to 6379 at expiration (DJX = 63.79), the five 75.00 puts would be worth $5,605 [(75.00 - 63.79) x 5 x $100 = $5,605]. You would then reduce this amount by the premium paid ($1,500) to arrive at a profit of $4,105. If the DJIA rose to a level of 8256 at expiration (DJX = 82.56), your puts would have no value and your loss would be limited to the total premium paid of $1,500. This strategy is based on a hypothetical situation and should be considered only as an example of a potential trading approach. cboe.com Call your broker and he can explain it to you. Mr Metals