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Technology Stocks : 3Com Corporation (COMS) -- Ignore unavailable to you. Want to Upgrade?

To: Chris Anderson who wrote (17489)	6/16/1998 4:09:00 PM
From: Lost in New York	Respond to of 45548

p.s Now that you have learned how to buy a call, you may be interested in how to sell, or "write" a call. Perhaps someone else on this thread will kind enough to explain. I'll take a stab at it. "writing", "selling", "shorting" a call means you're taking the other side of Chris' hypothetical transaction. You keep the $5, but you have to cough up 100 shares of XYZ at $50 each through November expiration if the contract is exercised. The financial impact on you is the opposite of the buyer's. Further, if you don't own those shares when you write the option it's called "naked" and can be very risky. If you own the shares at the time of the write it's called "covered" which is much more conservative. I like covered call writing and here's why using the same numbers. I own XYZ at $45 and I'm a neutral to moderately bullish. If I was bearish I'd just sell the XYZ. I sell the calls, get the $5 and my cost basis is effectively $40. Several things can happen: XYZ is over $50 at expiration and the stock is called away from me at $50. I've made 25% ($40 to $50) in a few months which is generally a good thing. The stock would have to be over $55 for this to be a bad deal for me. (I could buy back the option near expiration if I didn't want to lose the shares, but that's another long story.) XYZ is between $45 and $50, I pocket the premium and do it again. I can make a decent return on a stock that's not moving, although a stock that isn't moving wouldn't have options this pricy. If XYZ is down the $5 is a cushion against any losses. Dave BTW if this too much: never mind. Have I told you how much I hate stock quotes in '64ths? <G> I looks like all the CSCO and ANSD lovers will have to deal with '64ths and'32nds tomorrow <GG>