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

To: Doug Millan who wrote (40796)	12/24/1998 12:13:00 AM
From: Knighty Tin	Respond to of 132070

Doug, Yeah, but when a stock with no eps growth goes up 50% in a few weeks, it is gonzo volatility and the puts reflect it. I had a similar experience with Presstek from $80 to $200. My far out of the money puts lost hardly any value despite the price of the stock. And nearer the money calls were out to lunch. I don't know the answer to the problem. We are buying puts because we think the stock price is wack and now the put premiums say we are right on. How do you take advantage of it? One way I like, though it is not for everyone, is dollar ratio bear spreads. This is tough at all time highs as the strike prices some times are not there. But here is the theory. I might buy a shorter term put at $160 strike and sell enough $140s to pay for the premium. Yes, you have a problem if IBM goes to fair value, or $40 overnight, but that is not likely. And, even if it does, at some point your $120 kicks in. This is not a homerun strategy, but it can make a lot of money. I wouldn't do this until you have a lot of experience with options. Until then, holding your nose and buying the fat buggers probably makes the most sense. And, in fact, I use the strategy rarely, but it is an alternative when premiums get bizarre. MB