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

To: Tim Wash who wrote (23063)	3/23/1998 3:25:00 AM
From: Mike Gordon	Read Replies (1) \| Respond to of 97611

Tim: Well the first thing you're doing right is identifying a goal. If you're content with 10% between now and the end of the year, the question becomes is this the best use of your available funds. That's a decision only you can make. When selling puts as an opening position, you should be in cash to represent the strike price. For instance, 18K should be available for the sale of 10 Jan 99 20 puts. Your 18K should be receiving interest earnings during the life of the put. CPQ downside risk is at a minimum based on the characteristics and fundamentals representing this issue. I believe the conservative CPQ range between now and January is between 20 and 30. Therefore, if I wanted to be conservative, I would probably go with the Jan 25 puts at 4 3/8. Even the Jan 30s at 7 3/4 would not be a bad strategy. Calculate your rate of return on both these positions and compare it with a similar strategy of doing near term puts monthly. For example, sell 10 April puts at 22.5 for 3/4 to 7/8. Monthly returns on this play is more rewarding. However the risk is increased considerably. When the issue is put to me, I simply turn around and sell covered calls. Study your strategy well. The sale of calls and puts will always limit your up and down side potential. I set a goal for myself of 30%. Being proactive is better than waiting for the stock to go up in price. It's educational and gives you an opportunity to maximize your investment. Good luck. Looks like you've thought the process through. Don't be greedy and stick to your goals. Let me know if I can be of help. Mike

To: Tim Wash who wrote (23063)	3/23/1998 9:00:00 PM
From: James F. Hopkins	Read Replies (2) \| Respond to of 97611

Tim; I don't want to over do this or get into a long list of mistakes I made, and some by luck I avoided, as I saw others make them. Without getting into your option plan, I just want to touch on the Margin part af what you said. RE >>if i did this on as many shares as i could buy on margin (i would be willing to be fully margined on CPQ at $18/share!) ... that would be a 20% return in 9 months, or 27% annualized! with CPQ's excellent fundamentals, and the depressed condition of CPQ currenently, and with even the most pessimistic of views putting CPQ's absolute bottom at $15, this seems like an excellent play right now! -------------------------- TO start with it is not a good idea to use margins to leverage, ie ( with the idea to increase profits )..many a person and fund manager has got hurt bad this way. Some people have been compleatly cleaned out. To many things can go wrong. I use them as a temporary thing if I have the money some were else and ready or at least available..like a CD will come due next month..( if I get in a bind I can cash it early ..and take a small penalty ). I can also see Margins being used as an emergency or saftey valve..say I'm short and a stock moves aginst me.. then my margins let me hold the position , but that's not the same as going on margin intentionally from the get go to leverage. ----------------------------- Each person is different so it's can't be said what will work for one, will work for another, I'm more conservative in some ways than most and more aggressive in other ways. ------------------------- Keep this in mind..when your account is margined you are paying interest..it's not just the stock you went on margin to get that is involved ( unless it the only holding you have ).. in your case "if" you have only CPQ it might look like it but that might not be what it looks like. I can't tell if you see it or not..but your whole account is margined..if you margin to the max as you say any loss on your long position from this point on can subject you to a margin call.. Normaly you can go in to 35%, then they will let it run to 50% before the call..that's a 15% cushion..cpq at 24-1/2 drops to 20-7/8..and you are on a margin call..( ball park ) now your also 50% margined ..if you sell stock to reduce margin part of that goes to reduce the margin..so you can't even keep the 20-7/8 and from that point on it can get worse more fast..with each drop in price. ---------------- Lets say CPQ does good or holds it own..but you have several other stock holdings..your margin is based on all of them, any one can get hit..making your requirments more..so you start selling something at a loss..that only goes to fill the requirments..you don't even realize the full price .. as you have to sell twice as much each time. The pilgrim fund got eaten alive last year and funds can't margin as much as you can, ( i think it's a 20% limit up front ) not sure were the call limit is for them. Some body saw them in troble, and shorted their holdings one or two at a time and just gave them hell, knowing they would be forced to sell..wall street is a ruthless world. ---------------------- Last if your account gets in troble..the broker has the right to sell off at his discretion any holding you have to bring you back within margin. They won't lose money (not theirs any way..) I've heard some real horror stories from people who had traded ( or said they had ) for years..going to bed worth millions, and getting up to find out they were broke. Thanks to margins, a hit over here or there effects the rest, you can get caught up in the more you sell the more you gota sell, if the market goes down from it's lofty levels margin people get hit the hardest. Jim