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Strategies & Market Trends : Tech Stock Options -- Ignore unavailable to you. Want to Upgrade?

To: James Young who wrote (43478)	5/19/1998 1:43:00 AM
From: AlanH	Respond to of 58727

Basically, I have 1000 shares of DELL in my "short term" portfolio from buying 500shares at $85 presplit. My time frame of holding this is another 1 month or so. I would like to protect my downside but like to participate on the upside. 1000 DELL @ cost-basis ~43 -- Congratulations! This simplifies an already complex situation, given that covered call writing could not exclusively preserve such gains. Therefore, the put purchase appears to be appropriate. A crucial statement you have made is "short term" portfolio. Given this, I must assume that you aren't attempting to reap long-term taxation benefits. It is exceedingly important to understand that put purchases as protection will erase any accrued holding time on the stock. Further, accrual will not commence until the puts are liquidated. Consult your tax professional for facts, advice. Regarding which put series/strike is appropriate, this is a matter of personal preference. Naturally, the out-of-money put makes sense, but how far out (and how much to pay) is subject to debate. Rather than attempt to [mis]guide you in this area, I'd encourage you to investigate individual thresholds and specific financial goals. You may wish to consider an alternative strategy: put purchases in combination with covered call writing. To me, this is the best of both worlds (assuming proper architecture). The puts provide the protection, permitting you to write covered calls to maximize profits. Although you have stated a desire for simplicity, such a combination may be worth the effort -- and peace of mind. Finally, an options reference text is essential. (Lawrence McMillan is a regarded author in the field.) Good luck.