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To: Caroline who wrote (63)	4/27/1998 1:56:00 AM
From: Dennis J.	Respond to of 109

More on options Thanks, Caroline for both your notes. Re ITM, perhaps best to speak with a few examples. Assume a 45 stock has 3-month calls at 40, 45, and 50 priced at 7, 4 and 1.5. The deltas are like 0.7, 0.45, 0.25 (option move per 1 move in stock). (1) Stock makes a 1-month move to 50. Options are perhaps worth 11, 7 and 3. (2) Stock makes a 2-month move to 50. Options are perhaps worth 10.5, 6.5, 1-1.5. (3) Stock makes a 2-month move to 48. Options are worth perhaps 9, 4.5, .5-1. (4) Stock rises to 47 after 1-month, then quickly retreats to 43 over the second month. Options are worth perhaps 4.5, .5-1, nil. While these prices are just guesstimates, you can see how hard it is to consistently make money with the 50 calls. Even the 45's are frustrating, in that the first 2-3 of the move sees premium disappear at an alarming rate, with a smaller-than-expected profit. However, the 40 call makes money in (1) and (2), and loses about 36% in (3). At expiration, only the 40 call makes money in the 45-49 range. Doesn't the ITM seem/feel more comfortable? And with some brokerages, a spread is possible, where you own the 40, and sell the 45's later to capture some premium back, and take some of your money off the table. Finally, having paid 7 for the 3-month 40's, for another 1.5-2, you can likely buy another 3-months time (seems like good insurance). Regarding your last Q on relative profit after 3-months vs expiration on a 6-month call, in many cases, the extra time can be worth big bucks; wait out a sharp correction (asian flu for example), merger negotiations among several bidders, etc. Even put on a spread in a loss situation, hoping to recover part/all of your loss. In real life: (1) AFCI Jun 30 calls were bought in March at 4, and are worth about 12, with 2 months left. I am hoping for a run to high 40's or better, and have no premium at stake. (2) FORE Oct 12.5's were bought at 4 in late March with stock at 15.5. Stock is 20 with and calls are 7.5 with 6 months left. Lots of time for another earnings report, buyout, or whatever. (3) Pepsi May 42.5's were bought for 1 7/8 on Mar 23. After rising to 44+, stock fell to 41.5, and has bounced back to 44. I was looking for a run to 47-48, and will hold down to expiration now, with option premium only about 0.50. I may still show a 100% profit. Watch them along with me. The ITM long calls let me to sleep well, and I no longer worry about margin calls. An initial stake of $8-20K lets one diversify across several stocks in different sectors, or combine puts and calls to hedge against market risk. Hope all this is revealing, & improves your option selection. It has helped me, just to write this post. Good luck. //Dennis

To: Caroline who wrote (63)	4/27/1998 4:53:00 AM
From: saju chacko	Respond to of 109

you're right about the advertising...ORCL wasn't advertising enough about a month ago and the stock fell... now it's advertising properly.. so ORCl should move up by my calculations... IBM has always moved up when they were advertising heavily... IBM is advertising heavily now and guess what the price has moved up nicely.. of course, earnings did just come out and there is some hype out there in technology in general but this stock will continue to move up with the recent slew of new advertising.... any questions? Saju