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Technology Stocks : CYRIX / NSM -- Ignore unavailable to you. Want to Upgrade?

To: Craig Freeman who wrote (26268)	4/29/1998 11:54:00 PM
From: Robert Florin	Read Replies (1) \| Respond to of 33344

Yes, this is a reverse (downside) hedge. I use to do tons of them with warrants and underlying stocks, both straight hedge, reverse hedge and variations inbetween. Here is your catch. The prices you are probably looking at represent the close, while the hedge will require you buying the calls at the asked and selling the stock at the bid. Getting into a hedge is tricky. YOu have to be right on top of it re the spread. Some brokerages will execute a contingent order. Do x if you can also do y. It usually is very difficult to get a contingent order that has no risk. You also need to calculate the potential loss due to commissions. Usually, a better mixed hedge is to buy slightly greater number of equivalents (calls) than stock you short. That way you get a slight upside return if the stock goes up, and you don't sacrifice that much profit on the downside if the stock goes down. I think what you will find is that the options traders usually know this game pretty well and won't easily let you get into a risk free investment.