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Strategies & Market Trends : Advanced Option Strategies -- Ignore unavailable to you. Want to Upgrade?

To: Joe Waynick who wrote (134)	8/15/1998 11:58:00 AM
From: Tom K.	Read Replies (1) \| Respond to of 355

Joe, I look forward to watching your trades. If I recall, there is a caution with this approach in that the issue MUST move out of the range by the sum of the premiums before there is a break even. That's a healthy move, so be careful. You'll need a volatile issue (hence more costly premiums). You may want to paper trade some for awhile to be sure of the risks. I've not tried it, but would be interested in the learnings you get. Tom

To: Joe Waynick who wrote (134)	8/17/1998 12:30:00 AM
From: Joe Waynick	Read Replies (3) \| Respond to of 355

PLAT - New Reduced-Risk Trade. I've had this one in my sights for quite some time. Look at that chart! This baby has been channeling for almost a full year. The most profitable range has been between $24 - $27. However, the range seems to have narrowed to $24 - $26. askresearch.com There was a dubious flirtation with $30 this past month. It seems whenever this stk breaks $30, they go and acquire another company (aka Computer Associates), and the stk reacts badly every time. I was very tempted to short at $30. But the CEO promised the analysts there would be no acquisitions 3rd quarter. So I held off, expecting a new range to emerge. Then a week later, BLAMO! Another acquisition. Needless to say, the analysts are ticked off. That means PLAT goes back into the tank. I suspect it will resume its roll pattern while the CEO gets beaten up in the press. I think this stk is worth at least 3 trades! *The Strategy* While PLAT was at $29 I bought 20 Dec 22.50 puts @ 1.125 just in case it tanked again. It did. Tomorrow, I'm executing the following trades: Sell 10 Dec 22.50 puts @ 1.50 Buy 10 Dec 25 calls @ 3.875 (GTC) Short 1,000 shares @ $26.00 Combination Insurance cost: ((1.125 + 3.875) - .375) = 4.625 Channel: $24 - $26 Risk: -$4.125 after 1 trade (downside breakout) -$3.625 after 1 trade (upside breakout) -$0.625 after 2 trades +$1.375 after 3 trades (RISK FREE PROFIT ZONE) Only 3 trades to be in the profit zone even after commissions! Then it's blue sky profits after that. No cold feet on this one. The only way I'll exit is if the stk breaks the channel and I'm forced to exercise one side of the combination. I strongly believe the breakout will be to the upside for another run at $30. Strong resistance there. I think my worst case scenario will be two trades with an upside breakout. (Knock on wood.) Questions and additional input are welcome.