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Technology Stocks : VALENCE TECHNOLOGY (VLNC) -- Ignore unavailable to you. Want to Upgrade?

To: Robert Cohen who wrote (5706)	12/1/1998 8:39:00 PM
From: mooter775	Read Replies (1) \| Respond to of 27311

I'd rather wait until after Valence announces a major contract and the stock moves sharply higher before starting to talk about managing gains , etc.... FWIW, I don't think options can be purchased on margin - they result in a direct hit to your SMA or buying power. Also, when a stock is quite volatile, as VLNC has been, one can make a pretty good living with a buy/write program. I remember talking in August about buying the stock at $ 3.50 and writing the March 5 calls for about $ 1.00. Protection is down to $ 2.50 and gain, if called away, is $ 2.50 on a $ 3.50 investment in 6 months. Same is true today: you can buy the stock at $ 10 or so, write the June 10 calls for $ 3.25, so your net investment today is around $ 7.00. If the stock is called away you have made $ 3.00 on a $ 7.00 investment, or 42% in 7 months. Personally, I think the recent volatility in the stock has pushed the options to rather expensive premiums. I bought more stock outright today at $ 10 rather than buying any of the calls listed. And, finally, if you think the stock is tremendously overvalued on a short term basis after a big runup, you can always write deep in-the-money calls on a relatively short time horizon against your long position, since these will deteriorate the most rapidly if the stock declines sharply...

To: Robert Cohen who wrote (5706)	12/1/1998 9:06:00 PM
From: I. N. Vester	Read Replies (1) \| Respond to of 27311

re: managing a vlnc long position Robert, the problem with using put options to protect your position is that VLNC options, both puts and calls have been very expensive. E.g. if you want to protect your position now at $10 until June, a June 10 put will cost you $3. This protects you from 100% of any depreciation, but costs 5% per month. Just as a comparison, before all the recent volitility, puts at the money on the S&P 500 cost about 1% per month. I.e. you could have protected your downside against any loss at a cost of 12%/year. Unfortunately, VLNC portfolio insurance via put options is likely to remain quite expensive, unless the stock rises and then flattens out, thereby reducing the amount of volatility priced into the options. In the best of all world for longs, the price will continue to trend upward on a fairly steep slope. In that case, options will continue to be priced very high due to the actual historic volatility.