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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: Chip McVickar who wrote (18090)	5/7/1998 11:51:00 AM
From: Haim R. Branisteanu	Respond to of 94695

Chip you got it right. To execute this type of hedging you must be highly disciplined and know as to wen to sell/buy. And keep in mind you can not win them all!! The preferred time for such a transaction is in an upmove of the stock. Also as a guidance one month option appreciate or depreciate around 50% of the actual stock price move. For best results on strike prices and quantities of calls and puts try to build an "WATH IF" model on your spreadsheet. I would sugest to go for an 5 call to 4 puts type of hedging, and try to roll over those option smartly. Watch how option expiration affect your specific stock and act accordingly. That is all I can add, it is tricky and also I am not familiar with GE stock movements. Remember there is no free lunch!! If you own less than 400 shares of stock this strategy is to expensive, then just write calls. As to "hedge the market" you can short SPY which trades as a stock and is actually the mirror of SPX index.Personally I do not like indexes. Those are my 2 cents. BWDIK Haim

To: Chip McVickar who wrote (18090)	5/7/1998 10:46:00 PM
From: Greg Jung	Respond to of 94695

Chip, I'd look for a put with a date further out than your call. Sometimes they can be real cheap, but not now when stocks are dropping. i.e. sell a June 85 call buy a Jan75 put. If the stock advances and you want to keep it, rolling it is tricky. --------------- Come June Expiry say it is at $89. For $4 buy that call back and immediately sell Sep 85 for maybe $10 or Sep 90 for $6 or whatever it is. You book a loss on the first call, the second is a gain. Come september if the stock is at 95 buy the Sep 85 back for $11 and sell the Jan 90 for $12. This may be an exaggerated estimate of premiums but for very volatile stock the strike can be moved up as it is moved out in time. This can be done as a single transaction but the brokerage fees (for me, anyway) are 2x what two individual transactions cost. This year's tax result would be all losses, even though you have positive cash flow. The kicker is when that Jan90 expires you have a $1200 gain and taxes are due, so don't go out and spend the call money. If it is called then the option proceeds are rolled into the stock, I believe it can then be included in the long term cap gain (if over 18 months). ---------------------- Rolling out and up is easier if you have extra stock. I.e. Buy two at strike 85, sell 3 or 4 further out at strike 90. ---------------------- If you really are worried about downside, don't leave out puts because selling calls leaves no protection, it only makes it more expensive and slower to act. If you havent bought more stock with the exposed equity in the account then its maybe wasteful to buy puts. ---------------------- Greg