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Technology Stocks : Applied Magnetics Corp -- Ignore unavailable to you. Want to Upgrade?

To: Dave Chanoux who wrote (11632)	3/26/1998 12:08:00 PM
From: sjemmeri	Read Replies (1) \| Respond to of 12298

On buying APM vs. the whole sector - consider the DD index started last year.

To: Dave Chanoux who wrote (11632)	3/26/1998 12:54:00 PM
From: Spots	Respond to of 12298

>>What do you mean by a closing transaction? An opening transaction occurs when you enter a position (short or long) on an option. A closing transaction simply means you exit a previously held position by executing the reverse, or closing, transaction. If you hold no APM puts and you buy 10 Apr 10s, you have executed an opening transaction. When you sell them, that is a closing transaction. Exercising is also closing. >>If someone is selling puts, doesn't it follow that someone else is buying them? Sure, but it doesn't follow that the outstanding interest is increased or decreased. It depends on whether or not the seller and buyer are executing opening or closing transactions. If they're both closing, OI decreases; if they're both opening, OI increases; if one is opening and one is closing, OI remains the same. Say that with no APM position at all I offer to sell 10 APM APR 10 puts, and you, also with no position, buy my 10 puts. We've both made opening transactions; I'm short, you're long. I (we) have just created 10 option contracts that didn't exist before. OI increases by 10. Later, it happens, you decide to close your winning position and I decide to eat my losses. You offer to sell your 10 long puts (a closing transaction) and I buy them to cover my 10 short (another closing transaction). The 10 contracts now cease to exist; OI decreases by 10. Ok, suppose you decide to sell your winning puts (closing), but I say &^%&^, I'm just going to hang on and lose a bit more before supper. However, someone else buys your 10 puts who didn't own any (an opening transaction). In that case a transfer of an existing contract occurs (in effect), and OI stays the same. >> buy shares and sell puts to hedge if you expect a rise - is this something someone would do? Someone might do anything, but in effect selling puts is the same as buying shares and then writing a call on those shares (a covered call). You might buy stock AND sell (write) puts on the same stock (by that I mean the same security, you can't WRITE a put on the actual shares you bought) if you wanted to own twice the shares than you were willing to put up cash or margin loan to cover. You could write an in-the-money put which moves like the stock up to the put's strike price. Not a hedge; a leveraging device.

To: Dave Chanoux who wrote (11632)	3/26/1998 2:35:00 PM
From: LK2	Read Replies (1) \| Respond to of 12298

*Off Topic* Dave, stocks are considered to be risky. The risk involved in options is much higher. There are supposed to be conservative strategies involving options, but unless you really know a lot, the conservative strategies will probably end up costing you money. That's a simplification, but it's basically true. Writing (selling) puts is high risk, even for options. Selling naked calls is high risk. The brokerage company will require a lot of equity in your account before they let you write naked puts or calls (to protect themselves against your potential losses). Options are a form of leverage. You can make a lot of money, or lose a lot of money, faster than you probably thought possible. Or you can play options in a smaller way, buying calls, or buying puts. Unless you're a gambler, it's probably better to stay away from options. If you do want to gamble, you can do it more safely in the stock market than in the options market. Regards, Larry