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Technology Stocks : Micron Only Forum -- Ignore unavailable to you. Want to Upgrade?

To: DavidG who wrote (32890)	5/5/1998 12:53:00 PM
From: Knighty Tin	Read Replies (1) \| Respond to of 53903

DG, I've detailed my option strategy many times, so this will be a summary. First, I use a 90/10 technique, which means I put a minimu of 90% of my option money in a cash position and never commit more than 10% to long puts or calls. Secondly, I tend to use a thirds entry and exit technique. I buy a third of puts, if the stock goes up, without fundamentals changing, I buy another third, etc. I tend to take profits at quadruples or near expiration. I roll down (or up, in the case of long calls) and/or out if the price of the stock still does not reflect what I consider fundamental reality. I rarely cut my losses, as the strategy limits them from the start and time is what I'm buying. Soemtimes the most washed-out option becomes a huge profit. This happened with Mu's fall from the 90s and with Presstek. I never let price influence whether I consider the position to be right or wrong. Only fundamentals. As long as the company continues to do business the way I expect, and interest rates don't change dramatically, then my original valuation holds. But if there is a fundamental change, I have to start again from scratch. For example, if MU had actually made that $17 in eps that Witlessington told us about, I would have had to give my scenario a hairy eyeball. Or, if they actually ever had free cash flow and proved it by paying a big dividend, that would have blown my story out of the water. Since my overall strategy allows me to chase white whales, it takes a fundamental change for me to admit I am wrong. My potential losses are strictly limited to the cost of premiums. There have been many cases where I have admitted I was wrong fundamentally and I bandaged my wounds and moved on. Cisco was one. I was right that they were in trouble several years ago and falling behind in vital technological areas. I was wrong in believing that the mgt. would not take effective action to buy the technology they needed. I am well-chastened on that one. Dell was also one. I still think my disaster scenario will happen for this dog, but they have proven me wrong so far and I have not chased the first third of puts I bought a couple of years ago. I was also wrong on Compaq, but that was a temporary phenomenom. It is now falling apart fundamentally and in stock price. I have had some stocks where they went my way immediately. The SRAM stocks fell like a rock five minutes after I bought puts. Ditto for the graphics chip cos. But I've also had many where it has been a crusade. U.S Robotics and Presstek were two where, despite the fact that I was right, I had to take a lot of lousy expiration dates to prove it. Especially with Presstek. Some folks think I made a ton of money when it fell, pre-split, from $200 to $50. I did o.k., but I had also lost a lot of premium along the way that prevented this nose dive king from being one of my big winners. I made much more on a less dramatic stock, Atmel, because it rallied several times and always fell back toward reality. Hope this helps. Basically, I have to see where I am wrong fundamentally before I change my stance. Price moves don't do anything but make me fold my arms and stick out my chin like Mussolini. <G> MB