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Strategies & Market Trends : From the Trading Desk -- Ignore unavailable to you. Want to Upgrade?

To: funk who wrote (3042)	5/14/1998 7:45:00 PM
From: steve goldman	Read Replies (1) \| Respond to of 4969

You're kidding right? Let say you had 2000 CS that popped yesterday, and so , during its run yesterday, you consider the move a bit much or would like to take advantageof the volatility in the stock. With the stock at 14 3/4, you decide to sell 20 July 17 1/2s for 3/4 or so (i don't recall what they were yesterday nor know what they are now). So you sell 20 calls for 3/4, you pocket $1750 (figure 50, 60 bucks commissions) you net 1700...stock goes to 17 1/2 or above you'll get 17 1/2 plus 3/4 premium. but if the stock backs down you have 3/4 to go against your cost. As to whether people really do it, most traders i know absolutely use options in position trading (forget day trading) and make the money selling calls and buying back if stock pulls back and then writing agian if stock moves igher....lets you trade option against stock with out haveing to give up stock. You should spend some time getting to know options..forget going long the ones that are 25% out of the money with two weeks left, the cheapos, they are gambling, a suckers bet. The true options player uses them to hedge, to protect and to generate income. Regards, Steve

To: funk who wrote (3042)	5/14/1998 7:59:00 PM
From: Spots	Read Replies (1) \| Respond to of 4969

Two other points (after Steve's answer). Options can work for an exit strategy. Say you're overvalued in your long term portfolio, and you want to divest yourself of half. You could write at-the-money options to generate extra return. If your stock moves up, swell; you can let it be called and you add the premium to what you would have gotten if you sold it earlier. If it stays in a range, you collect the premium. If it retraces, you have the premium for a cushion. If you are really playing it conservatively, you can use part of your option premium to buy protective puts to guard against a major reversal. Or, if you want to play a bit differently, you can roll up your options to a higher strike farther out, or maybe to the same strike and generate additional premiums. And, as Steve says, if the stock fluctuates, you can sell calls on the ups and buy them back on the downs. Do this right, and you have a money pump. Can you screw it up? Yep. But you don't have to watch it anything like as close as day trading. Here's another: Say you have a bunch of gain you want to move to next year. Your stock is up, and you want to hedge it, but you can set an exit point. You can write a longer term covered call (always with the ability to use some of the premium to buy a put to protect your downside). If it get's exercised next year, fine; you got what you wanted and add the premium to your gain. If it pulls back, you own the stock, you haven't paid tax, and you write another round. If you bought puts, you cash them in too for a little (or big) kicker and start the whole thing over. Tame for day traders, I guess, but plenty exciting for the likes of me. Regards, Spots