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Technology Stocks : Winstar Comm. (WCII) -- Ignore unavailable to you. Want to Upgrade?

To: Steven Bowen who wrote (7954)	8/27/1998 2:09:00 AM
From: SteveG	Respond to of 12468

<..Don't forget to subtract out your 14k margin balance leaving you an equity in this case of only 39k, less the margin interest for a year and a half. So the option case still wins..> Not so. 14K on margin sells at $53, yielding as you say, $39K. $39K minus 10% 18 month margin interest of $2K yields $37K. 37/14 = 264% 14K (@600 per contract) buys/controls 2300 shares at strike $35. If we assume options burn through time premium in reaching $53, break even is $41. $53 yields a profit of $12/share x 2300 = $27.6K 27.6/14 = 197% <...A million scenarios can be run. But I believe that the biggest advantage to the leaps is totally aside from the percentage gains; it's that I believe you will sleep a ton better in the mean time with a longer time frame in mind and no worry of a margin call, and you don't need to sit and watch margin interest eating into your principle as your stock drifts...> 4 months ago, I would have agreed. How could we NOT be above 50 by 99YE? Well, trust me, hindsight is pretty acute. While margin costs can be paid to protect the position, once down, nothing can effectively be done to protect the options' capital (not butterflies nor straddles nor averaging down). So what looks like a layup now, can turn into a nightmare later. But it's all fear and greed, risk and reward. <..Also, anyone gutsy enough to be 50% margined at this point may well be forced to sell due to margin calls if the stock continues to fall to the teens, and at that point your equity is gone for good and you will not gain near as much even if the stock does then rebound to 53. If you buy the leaps and the stock drops to 10 and then recovers to 53, your total profit potential remains intact...> True, but if this drop occurs and it's mid 99 (though less likely, don't think it couldn't happen), are you going to hold those options, or sell at a 90% loss, at least getting something back? With stocks, but ESPECIALLY with options, the rule is don't wager more than you can afford to lose. If you had $100K, and this was your retirement savings, I'd go with stock a LITTLE on margin, over full margin or highly leveraged options. And keep a limit discipline - if you think really KNOW the story - give your limits more room, but be prepared to close at least part of the position. However, if you have expendable gambling $$$, definitely go for the out of the money LEAPS.