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Strategies & Market Trends : Three Amigos Stock Thread -- Ignore unavailable to you. Want to Upgrade?

To: Sal D who wrote (7782)	8/16/1998 7:57:00 PM
From: LTK007	Respond to of 29382

Thanks,Joe,for an options nitwit like me,this is very helpful.Max(eom)

To: Sal D who wrote (7782)	8/16/1998 8:51:00 PM
From: Sergio H	Read Replies (2) \| Respond to of 29382

<The call option enabled a long term investor to purchase a stock and limit the risk during the initial holding period. The trade offs: The negative was a higher purchase price and the positive was limited risk.> Sorry to disagree with you. Joe, in your example, Mike bought one option for $150.00. The co. had a bad earnings report and the stock dropped below the strike price. 100% of the investment was lost. Buying the shares, it would be unlikely to lose 100% of the investment. Options are always riskier. The interest earned on the money not invested is minimal and does not offset the money lost. The commission on this investment (buying 1 call) is at least 20% of the money invested for a round trip. Joe, I don't think that buying 1 option is a good idea. Sergio

To: Sal D who wrote (7782)	8/16/1998 8:57:00 PM
From: Sal D	Respond to of 29382

Call options example #2: Have you ever had the price of a stock you owned dip to your stop loss price triggering your sell order and then seeing the stock price rise again but you were already stopped out. The intent of the stop order is also to limit risk, the call option however while having limited life and limited loss does not have limited price. If the stock price dips and then rallies during the life of the option, you as the call purchaser still benefit in the stock price rise above the options break even point. This is an advantage over the stop loss order but it's disadvantage is it has a higher cost then purchasing the stock outright. It does however have the benefit of limited risk. A stock purchaser will profit more then a call purchaser if the stock price rises, but has a higher risk potential then the call purchaser. This again is just an alternative, with a different set of trade offs. Joe