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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Jacob Snyder who wrote (24883)	10/5/1998 8:02:00 PM
From: Robert O	Read Replies (2) \| Respond to of 70976

I don't want to get into too long a discussion, but: In the short-term, it's a zero-sum game, me against the professionals. It is NOT a zero-sum game because of the bid/ask spread, commissions, fees, etc. Especially between you and the Pros. They do not live by the same rules you do. I'm not bitching just to bitch. My point is perhaps there is a different game you can play that is not so lopsided instead of trying to beat Porky in his own joint. All the "hedging" strategies in the world (time, size, etc.) will never overcome the house edge except inside info. and that's illegal and reserved for players known as "the Pros." Compare the average expected outlay on any "wager" with its average expected return. If it's a negative net expectation game, don't play. I am never in a position where I MUST do anything. In certain option positions you BETTER exercise or else! I've had positions that required I liquidate the position before the expiration or the negative implications to me would have been far greater than no action. You may never run into these problems with your plays. Again, I'm still learning myself but let's understand that in your example one is paying almost $4 for the right to (until Jan. 2001) buy AMAT at $40 (closed today little over 23). So, first you must recoup 17 points or a 74% increase just to hit the strike price. Then, you need to recoup an additional $4 paid as a premium. Almost a 100% increase in a little over 2 years time just to break even. Maybe you're not "losing" the time value till the end, but boy oh boy is it being paid for up-front. Please keep in mind I AM NOT saying you're purchase was a "bad" one. I just want to help think about what it is that is being purchased and what that means. I guess one could assign probabilities to various AMAT/Mrkt. events occurring and then compare that outcome to the current price of an option to see if it makes sense to use the option's leverage to make money. Maybe it does make sense to try and use LEAPs as a way of "decreasing risk" I'm just not sure how easy it will be to overcome the other costs involved to be effective. RO P.s. Certainly many of us are tempted by the leveraging affect of options and AMAT's explosive upside potential in the near-medium/long term; additional feedback is welcomed.

To: Jacob Snyder who wrote (24883)	10/5/1998 8:47:00 PM
From: Berk	Read Replies (2) \| Respond to of 70976

Jacob, your are most likely incorrect on your statement that the MM is unhedged on 94 options. Every option has a delta which to oversimplify is its value in terms of shares of stock. Once the MM sold the LEAPS to you he most likely hedged himself by buying the equivalent number of shares of stock or undervalued options (based upon his perception of volatility) since his sale of calls to you made him short the stock. The exception would be if he wanted to take the risk and stay short. Delta by the way varies with price and other factors, the closer to the strike the more closely the delta approaches one. By the way many posts ago I asked if you were hedged, meaning that you could pick up premium offset in calls that would expire prior to your LEAPS (called a time spread) which will lose time value.