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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: miklosh who wrote (34398)	10/22/1998 9:20:00 PM
From: eabDad	Read Replies (3) \| Respond to of 132070

Miklosh: By selling deep in the money calls you will effectively be neutral the stock. I have not quoted them, but my guess with AMAT at 32 and change, you could sell the Jan 20's for 14+. You pocket $14 now, but you hold the option short. Now three things could happen: (a) AMAT goes below 20 before option expires. Result: you keep the stock and report a $14 gain on the option which expires in Jan 1999. It is a 1999 event because the position is not closed until then. (b) AMAT stays above $20 before option expires. Result: In Jan 1999 you sell you stock for $20, and your option position is closed in January as "Exercised". Net effect - you sold the stock for $34 in January. (c) Option gets exercised before expiration, and let's say for this example before year end 1998. This strategy for deferring taxes has just failed, but you did sell the stock for $34. Now a moment on the likelyhood of (c). For call options, extremely rare, almost negligible. Why? If I am a holder of call options on AMAT, with no dividend, there is no benefit of holding the stock between now and option expiration. If I wanted to sell the stock, I can sell the option usually with a premium. Even if there is zero premium, I would still sell the option in one transaction rather than excercise the option and sell the stock, making two commissionable transactions. The only motivation to hold the stock before option expiration was if I wanted to be the holder of record for a shareholder vote. This is unlikely in AMAT before January. Now there is a different story for the early exercise of put options. If I hold a dog stock that tanked and own puts, an early exercise of the option holds a benefit - I get cash to invest elsewhere, including money market funds. In some cases with deep in the money puts, this is a real risk, and while still unlikely could happen. While I never hesitate writing calls, I hesitate writing puts unless I really am looking for a position in the stock. Z

To: miklosh who wrote (34398)	10/23/1998 12:14:00 PM
From: Knighty Tin	Read Replies (1) \| Respond to of 132070

Mik, Re Z's comments. Deep in the moneys are not always a great choice. If Amat stays high, it will be called from you. But there is no rule that says the caller has to wait until January to do it. As the stock rises, he has a large cost of cash to carry that call. If the premium drops below that cost of carry, he will exercise early, perhaps in December. Of course, you can buy to deliver new shares without touching your old shares, but then you are back to the commissions problem. MB