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Strategies & Market Trends : Point and Figure Charting -- Ignore unavailable to you. Want to Upgrade?

To: james ball who wrote (5592)	8/9/1998 1:28:00 PM
From: Ms. X	Read Replies (1) \| Respond to of 34811

Tommy could you give us a description of what indicators you use to judge whether the big or small caps are coming into play? That way people can track those too in your portfolio database. Thanks.. Jannie I ammie

To: james ball who wrote (5592)	8/9/1998 4:49:00 PM
From: Challo Jeregy	Read Replies (2) \| Respond to of 34811

Hi Tom. One reason that I'm chicken to play options is that I don't fully understand the trades behind them. (After asking my question, make that, don't understand at all <g>) If you sell a call on a stock and the stock is above the strike price on expiration the Option Clearing Corporation will take the stock. With a stock going down almost everyday at 1/2 pt or more, what call would you look at to sell? Let's say, stock XYZ is @30 on Aug 10 (and you anticipate it going lower). Do you sell Aug 30 calls? BTW - Above all in options, KEEP IT SIMPLE!!!!!!!!!!!!!!!!!! Thanks for not adding the infamous stupid <g> I'll be watching you on Monday.

To: james ball who wrote (5592)	8/9/1998 8:47:00 PM
From: james ball	Read Replies (1) \| Respond to of 34811

Tom Dorsey to group. Lets talk options again for a second. The key to understanding all option strategis lies in understanding the definition of a put and a call. I don't feel like typing them out so I will defer you to CBOE page. Some thoughts on buying calls. Consider a basketball player who is a 70% free throw shooter. He recieves a personal foul in a game he is playing which gives him two free throws at the basket unincumberes by his opponents. Since we know statistially he is a 70% shooter he will make 7 out of 10 shots at the basket. But he has two shots to make. To calculate the probability he makes both shots we multiply .7x.7=.49 or 49% chance he makes both shots. to be successful in the stockmarket you must be correct on two events. YOu must buy the stock right and you must sell it right. If you are a 70% stock picker you theoretically have a 49% chance of making money. Now lets add in the option variables. You must also pick the right expiration date for the stock to move in. Lets say you can do this right 70% of the time. Now you must pick the right strike price. Lets say you can also do this right 70% of the time. YOu now have a .7x.7x.7x.7 =about 24% (no calculator right here). This is why most people lose at the option buying game. Lets see how you can eliminate two variables. Buy in the money and you don't have to worry about the stock going up and you losing on the option. Buy time, possibly a LEAP or at least a 4 month option maybe longer if possible. Now you are back to the stock probabilities. Don't ever trade options,it's a gamblers game and you are trying to create wealth. Hold the option til expiration. This takes the emotion out of owning it and it gives the stock time to really move up. Like Lu from $50 to $144 and split two for one and now up to $94. That is what you call real money in a call. You could have 10 expire worthless and still come out way on top. Same for puts. Delta is a fancy sounding word to illustrate how much the option will rise with a 1 point rise in teh underlying stock. A rule of thumb. 5 points in the money Stock $50 and option strike 45 = delta about .75. Five points out of the money stock $50 and option strike price $55 delta = .25. At the money Stock $50 and Option strike $50 = delta of .50. deep in the moneys carry 1 delta. Never buy more calls than you have an appetite for round lots of stock. This prevents you from overleverage. So you can effectively create the same play in a stock, in the option for less money. Options are also better off than the stock when the stock is declining. As the stock declines the delta contracts so a delta of 1 eventually becomes .75 and .50 etc. So you are better off in the option than the stock in this case. Options also give you staying power. In a stock you could be stopped out just to see it reverse up and move much higher. That's life but how much can you risk in a stock. If you view the option premium as your stop (amount you would have used to stop out of the stock) then you have staying power til expiration. We can talk more about options later in the week. Tom Dorse