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

To: Tom Gebing who wrote (23471)	3/26/1998 7:27:00 PM
From: Satish C. Shah	Read Replies (2) \| Respond to of 97611

Thanks Tom. very aptly put (no pun intended). That is what Charles Schwab tried to tell me, not in that many words and not so clearly. Thanks. Regards, satish

To: Tom Gebing who wrote (23471)	3/26/1998 8:18:00 PM
From: Mike Gordon	Read Replies (1) \| Respond to of 97611

Tom: Thanks for your timely response. Tom, I may not have been clear in my earlier post. Lets assume that I have an IRA with just $30K cash. I want to buy CPQ. Instead of buying CPQ on the market at 26.625, I choose to sell 10 April 25 PUTs. At $1.25, I receive $1250.00. Any time between now and the third Friday in April, I have contracted to buy CPQ at 25. One of two things will happen between now and then: 1) CPQ will stay above $25 by April 17. Therefore the put is not exercised, and I keep the $1250. 2) CPQ will dip below $25 and I am forced by contract to purchase CPQ at $25. Because the cash is in the account, I have no problem buying the stock. At no time did I sell a put against CPQ. I did however, sell a put against the cash in my account. (It's like selling a covered call on cash), In either case, this is an extremely conservative play. The risk of loss is no greater than holding the stock out right. There is a risk as compared to holding the stock. If CPQ suddenly goes up above $25, I will not participate in the gain. Regardless of how high it goes, I will only receive the $1250 from the puts. In summary, buying puts in an IRA has far greater risk then selling puts. That's why it's difficult for me to understand why IRA accounts are prohibited from this strategy. I still maintain that is the brokers who would like you to buy the stock while they receive the higher commission. Let me know if we have the same understanding. Mike