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Technology Stocks : Ascend Communications (ASND) -- Ignore unavailable to you. Want to Upgrade?

To: gbh who wrote (45290)	4/24/1998 3:26:00 PM
From: AlanH	Read Replies (1) \| Respond to of 61433

Gary Hoch, re: can you explain what is meant by, 1) "Long 8 SEP50C" or 2) "Short 2 SEP40C"? Does this mean buy, 1) buy 8 sep50 call contracts 2) sell 2 sep40 call contracts If so, how did you come up with the specific number of contracts? Yes. I'm on the run today, but I'll post the math over the weekend. BTW, I don't highly recommend the above trade. I believe your best bet is with incremental call purchases. (And, yes, I'd advise selling nearer term calls for protection, income.) If I could impress only one thing, it is: Think in terms of compounded profits! Since you believe ASND will rise by 15+pts within 9 months, you should not be satisfied with one play. Establish a position that is flexible and prepare to evolve it. Each series (MAY, JUN, SEP, etc) represents incremental opportunity. I'm headed to Marin this afternoon, so it'll probably be Sunday before I can offer detailed math. Good luck.

To: gbh who wrote (45290)	4/25/1998 8:03:00 PM
From: AlanH	Read Replies (1) \| Respond to of 61433

GHB, follow-up to your options question: Being somewhat of an options simpleton, can you explain what is meant by, 1) "Long 8 SEP50C" or 2) "Short 2 SEP40C"? Does this mean buy, 1) buy 8 sep50 call contracts 2) sell 2 sep40 call contracts If so, how did you come up with the specific number of contracts? If not, please explain. Practically speaking, I don't anticipate you (or anyone else) will establish a trade without fully understanding the mechanics. Unless ratio spreads are second-nature, "go with what you know." Not to dodge your questions, here goes: A) Yes, here "long" = buy, "short" = sell. Refering to the related post, siliconinvestor.com The example in question is: Long 3 SEP50C, Short 2SEP40C. B) The ratio was arrived by comparing the DELTAs of the two calls, which at the time were ~.60 for SEP40C and ~.40 for SEP50C. Therefore, in order to create a "delta neutral" position, you would need to buy 6 SEP50C and sell 4 SEP40C (or any 1.5:1 ratio). To simplify, 3 and 2 have been used. [DELTA is the change in option value for a 1 point change in the price of the underlying asset. Delta can be computed using any number of software programs.] Even if you are not a "delta neutral" fan, the 3:2 ratio conforms nicely to your aggressive and very bullish outlook. Such a tight ratio will increase the initial debit position and is less of a downside hedge, but offers much better leveraged toward the upside. Hopefully, I haven't created more questions than answers.