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

To: dr. z who wrote (27233)	12/16/1998 11:19:00 PM
From: Jacob Snyder	Respond to of 70976

dr. z: Yes, I have amat call leaps. Why should I hold them if I expect the stock to go below 30 in the first half of 1999? 'For the same reason I bought in increments, and the same reason I started buying at 26 when I thought the stock could go as low as 13: I'm not smart enough or arrogant enough to think I know for sure. Stocks in this group are wildly volatile. Eventually (3-5 years) the stock price will reflect the fundamentals, and change in stock price will be proportional to change in EPS. But on shorter time frames, the stock is controlled by manic-depressive momentum guessers and day-traders. At least once a year, you will have an opportunity to buy at an absurdly low price (P/S under 2), and/or sell at an absurdly high price (P/S over 4-5). In 1996, the stock bottomed at a P/S of 1. In the 1998 downturn, we didn't get anywhere near that low, even though the fundamentals were worse this time. I'll take advantage of the opportunity if I get it, but I'm not sure it'll happen. Anything can happen. I'll harvest them (I like the use of that word) after I have long-term cap gains, and before the option loses its time premium (most of the loss of time premium happens in the last 6 months before expiration). That means I'll sell the 2001 leaps between October 1999 and July 2000. Before I've held them 12 months, I'll buy shorter-term puts as a hedge, in whichever semi-equip is the most overvalued (nvls at the moment), if I think the group has gotten way ahead of the fundamentals, and is likely to have a big pullback. I've done that once already (but the pullback I expected didn't happen), and I may do it again. This strategy will probably lower my overall gains, but it provides downside protection.