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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Robert Douglas who wrote (6293)	9/9/1998 1:12:00 PM
From: Paul Berliner	Respond to of 9980

I don't see how I'm hedging any gains - the upside potential is just as unlimited as shorting, but with an even better perk - Lets say I'm a new guy, without a ton of capital. I deposit the $30K in my brokerage account to short 1,000 shares of Dell @ 60. Dell goes down 10 points in 3 days, I cover and make $10K. Now the second scenario: I take the $30K and buy 50 62.5 puts @ $6 each: total purchase price = $30K, BUT NOW I'M SHORTING 5,000 SHARES INSTEAD OF JUST 1,000. Again, I'm out immediately if Dell start to move up. Dell drops 10, and I sell the options back. The amount I make depends on how much time I have left, but in the case here it would be no less than $62,500, and most likely a lot more because an in the money option like Dells' premium doesn't SERIOUSLY decay until the last week or so. Also, I'm not holding any securities in a margin account because I only trade short term. My main LT holding is Texaco's DRIP (talk about boring). And that isn't in my brokerage account. If I were to buy $30,000 in options w/cash, I cannot use them as margin against additional option purchases like you can w/common stock. Also, I don't have quite enough money that my brokerage firm would ever give me a short-interest rebate! Time is against the option holder, but my discipline is that if I don't get results almost immediately I cut my loss short, so it hasn't been a factor. I could never stomach holding a short position for more than a few months.....It's agony and I admire your will. P.S., Robert, I don't see how I'm a wimp for using options. I simply wouldn't have the capital to do what I've been doing without the options -I'm not a millionaire. And I can make just as much money as someone who's short an equal amount of shares. 7% interest on the margin cash is nothing anyway - my aspirations are a little larger. I plan on being a money manager and don't see how I can get the same experience if I don't have enouogh cash to take out similar short poistions. Maybe I'll call my fund the Paul Berliner macro-speculative derivatives fund!