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Technology Stocks : Altaba Inc. (formerly Yahoo) -- Ignore unavailable to you. Want to Upgrade?

To: HG who wrote (15794)	12/2/1998 6:18:00 PM
From: HG	Read Replies (2) \| Respond to of 27307

On trading strategies... From the DELL thread... A good strategy (more advanced) is the bull spread, and is used by those who expect the stock to move up. You buy a call with a lower strike, and sell a call at a higher strike. For instance, you would buy the Feb 65 at $8.625 and sell the Feb 80 at $3. Your net cost is $8.625-$3.00= $5.625 for $15 of spread. While the Feb 80 is technically a naked call that you've sold, you (in reality) are able to cover it with the call you own at $65. So if someone calls you on the 80, you call the 65 and pocket the $15 difference. When you subtract your initial cost to open the position of $5.625 from the $15, that leaves you with a net gain of $9.375 (on an investment of $5.625 or a 166% return on investment). The drawback is that you will be called out of the 80s if the stock moves up above $80, and therefore lose any upside potential (upside cap) past that point. The plus is that you're only out $5.625 per share as opposed to $8.625, and if the stock finishes below $65, you're only out $5.625 vs. $8.625. WHATEVER YOU DO, DO NOT SELL THE 65s WITHOUT BUYING BACK THE 80s (CLOSING THE SHORT) AT THE SAME TIME. Otherwise, you'd open yourself up to having to cover the short at wherever the stock price is at the time you're called (not a good idea!). Remember, if your 80 can be called, you can call the 65 to cover, as long as you still own it. A further benefit of this strategy is to buy back the 80 if the price drops significantly, and not sell the 65 until later after the stock price moves back up (assuming it does, but then that's your bet. Isn't it?). This removes the upside cap. NOTE: The illustration above does not take into account commissions. This strategy should not be used if you are at all unclear about the mechanics involved. There may also be other, good combinations of options using more or less spread, etc. other than my example. Try moving out into May where the premiums are steeper [it makes most sense when you can buy the most spread for the least, net out-of-pocket, and assuming that you think the stock has a resonable chance of getting above your lower strike plus the premium you paid (i.e. break-even)]