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Biotech / Medical : Sepracor-Looks very promising -- Ignore unavailable to you. Want to Upgrade?

To: ocerg who wrote (1346)	10/30/1998 12:11:00 AM
From: M. Ramle	Read Replies (3) \| Respond to of 10280

Ocerg: I don't know what kind of an option trader you are or how much experience you had in trading options, but it sure sounds from your post that you are assuming the stock will expire right around your strike price + or - a couple of points. If it is higher than your strike price, then you collect the option premium and you go on to the next round with an exceptional annualized return, and if it is lower than your strike price, then the stock will be put to you and you hang on to it for a few weeks and the stock moves higher and you sell at a profit. WOW, it sure sounds very easy, but let me tell about three events that happened where you would have been burned down to the ground had you followed your strategy: 1. UAL back in 1989 during the buy-out by it's own then management: The stock was trading close to it's proposed offer of $300/share, until one Friday morning the news came out before the market opened that the management could not obtain financing to close on it's deal. The stock was halted until three days later, when it opened at around $140/share. I don't believe you need me to tell you what would have happened to your annualized return had you sold close-to-the-money puts at around the $283/share with the stock opening at around $140/share. Yes, you might have had the money to buy the stock when it was put to you at around the $280/share back in 1989, taking almost (10) full years to recover. I don't believe that that would have been a very attractive return on your investment !!! Now, compare your strategy to mine, and you would clearly see that your maximum risk/loss would have been 5pts. multiplied by the # of puts sold. 2. Zitel Corp.: About a year ago, this stock was trading one morning at around $70/share when the rumor that George Soros had denied ever purchasing this stock. Within a few minutes, the price dropped from the $70 range to $36, and now is trading at around $4/share. Needless for me to guess what your annualized return would be holding on to this stock. 3. Ciena Corp. trading around the $94/share a few months ago, and now the stock is around $14/share. Mind you, I am not saying that no stock put to you after it stumbles will never recover and I don't want to get involved in a debate/argument as to which strategy is better or worse, but it has been very obvious lately that WallStreet has no patience for disappointments, i.e. if you disappoint, you will be crushed for a long time, and if you deliver, then you will be well rewarded. Finally, I assume that your selling un-hedged naked puts has worked well for you and I wish you the best of luck. Mazen