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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: freeus who wrote (88243)	1/9/1999 10:58:00 AM
From: PAL	Read Replies (3) \| Respond to of 176388

Hi Freeus: Since you like options so much, here is another beauty of the use of option: remedy a deficiency. On 12/17/98 when Dell was stagnant for a couple of months and selling for 64+, I made a wrong move by selling Dell CC Jan70 at 2 1/8 because Jan99 is short month for option (the third Friday is 1/15/99), hoping I can keep both the premium and my stock.Although I sold more than 10contracts, let us just use 10CC for ease of calculations. Of course Dell moved higher and my covered call was deep in the money. So on 1/5/99, I closed my position by buyng back the 10CC at 5 5/8 for a loss of 3 1/2/share - $ 3,500 (ouch). But wait: To get back that 3 1/2 loss, I sold 5 Dell May strangle: a. sold 5 May85 Covered Calls at 7 1/8 (3,562) b. sold 5 May80 puts at 12 5/8 (6,312) What does that mean? 1. The May CC covers my loss of Jan CC's 2. The number of exposure of Dell is cut to 1/2 (from 10 contracts to 5) 3. The strike price is raised from 70 to 85 4. If Dell closes between 80 and 85, I keep the 500 shares of Dell, and keep the put premium (note that the May CC premium is already penciled in for Jan CC loss). 5. As Dell runs away as we approach May, we can roll it again to later month if necessary. 6. If Dell is above 85, and I don't do anything, the stock get called at 85, plus I keep the 12 5/8 put premium, essentially selling Dell at 97 5/8 7. If Dell falls below 80, I keep all my Dell and buy another 500 shares of Dell at 67 3/8 (80 minus 12 5/8)! I have to thank Don Martini for sharing his knowldege in options. He opened my eyes to selling puts as a profitable strategy. If you read my previous post, I control 1000 shares of CSCO with using OPM. I also control a bunch of DBCC shares with no money down as well. That is the beauty of options. Good Luck. Paul.