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Technology Stocks : PairGain Technologies -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (20340)	2/6/1998 2:25:00 PM
From: Jay Mowery	Respond to of 36349

Hey Porc, Glad to see you're still hangin in! I think Patriot's machine is given him a hard time. I ain't seen him post since this mornin' and he was havin' trouble, as he said he lost a bunch of stuff last night Hopefully buyers are gonna come back before 4:00! Best to ya, Jay

To: porcupine --''''> who wrote (20340)	2/7/1998 12:10:00 AM
From: margin_man	Read Replies (1) \| Respond to of 36349

porc, Don't mind if I ask what was the premium of the Jul 15 calls when you sold them? Patriot

To: porcupine --''''> who wrote (20340)	2/11/1998 6:35:00 AM
From: porcupine --''''>	Read Replies (4) \| Respond to of 36349

PAIR Options made clear as mud --''''> To: porcupine --''''> From: Patriot Sunday, Feb 8 1998 5:41PM EST << act fast because PAIR moves fast too. >> Patriot: porc moves slow. he's still stuck w/Jul 15 cc's on his whole position from the 1/16/98 margin call. however, the time premium has shrunk a point since the upward move in the share price, so that's a one dollar gain. if it goes up to, say, 22.5 to 23, porc'll roll up and in, looking to gain perhaps another point in time premium --''''> porc, I don't understand your plan. If PAIR goes to 23, the Jul 15 also goes up. How do you roll up? Am I missing something? Patriot --------- Okay, follow closely, because I'm only going to explain this once, for at least another 24 hours :-) I'm not trying to speculate on the swings in the price of the stock or the options (not because I have anything against it, but because I am always wrong). Instead, I'm seeking to capture the difference between market price and Intrinsic Value, which in the case of options is called "time premium". Plus, I'm looking to avoid ever having to put up cash to meet a margin call. At 3pm on 1/16/98 (when I had to meet the most recent margin call), PAIR's price was 17-11/16 x 17-3/4 and the Jul 15 calls were 5 x 5-3/8. So, the Intrinsic Value of the Jul 15 call was 2-3/4 (17-3/4 minus 15); therefore, I netted 2-1/4 (5 minus 2-3/4) in time premium. As you know, as an option moves further and further in or out of the money, the time premium tends to shrink to zero. Now, say PAIR goes to 24-1/4 x 24-5/16 by the third week in May. Based on actual prices of 11/20/97, and adjusting for the 6-month shift in time frame, the Jul 15 call should be about 9-1/4 by 9-3/4. Note, the time premium has almost evaporated, with Intrinsic Value on the bid side now 9-1/4, the same as the call's price (24.25 - 15 = 9.25). Based on the same historical data, the Jul 22.5 call would be 3-1/2 x 3-7/8. Meanwhile, I have gained 6-1/2 more points of margin buying power, since the stock has risen from an ask of 17-3/4 to a bid of 24-1/4. So, I can buy back the Jul 15's for 9-3/4, and sell the Jul 22.5's for 3-1/2, increasing my debit by 6-1/4. But, note that I've picked up another 1 point of time premium ([22.5 + 3.5] - [25] = 1). So: a) If I had had to sell on 1/16/98 to meet the margin call, I'd have only gotten 17-11/16. b) If I had been assigned on the Jul 15's, I'd have gotten 20 (15 + 5). c) If in May I roll up to the Jul 22.5's, and the shares get assigned, I'm out at 21.25 ({[22.5 + 5] - 9.75} + 3.5 = 21.25). The key is that the margin buying power increases dollar for dollar as the share price rises. Whereas, the call's price advances by less than dollar for dollar, because the time premium shrinks as the call falls deeper in the money. I didn't say this is easy. Part of the problem is the amount of margin I took on in the first place, a part is PAIR's incredible volatility, and a major part is my relative inexperience. But, by buying back calls as their time premium shrinks, and selling more calls with higher strike prices (as long as the new time premium exceeds the old by more than the spread between the bid and the asked on the call [currently 3/8 to 1/2 of a point]), I can eventually recapture the full advantage of the added leverage the margin buying has provided, in spite of PAIR's volatility. Have I made this as clear as mud? porc --''''> "There are no sure and easy paths to riches in Wall Street or anywhere else." (Benjamin Graham)