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Technology Stocks : IFMX - Investment Discussion -- Ignore unavailable to you. Want to Upgrade?

To: Mike Harvey who wrote (12887)	1/27/1999 9:02:00 AM
From: Lou	Read Replies (1) \| Respond to of 14631

Early morning at Quote.com from 13 3/8 to 13 3/4- but yesterday, it looked good on SIII before the opening, but the early morning did not spin a trend for the rest of the day.

To: Mike Harvey who wrote (12887)	1/27/1999 12:09:00 PM
From: Mark Finger	Read Replies (2) \| Respond to of 14631

Mike, I would agree with you to some extent, especially if this is a pure speculation basis. However, options markets can serve some useful purposes. I will get to those in a moment. First for some parallel analysis. There are options markets in physical goods. In particular, they serve to allow real buyers and sellers of goods (as opposed to pure speculators) more control over the market. For example, my father and brother are farmers. They sold a portion of last fall's soybean crop a year ago at what looked to be a good price (and really turned out to be). By selling portions of the crop in advance, you can even out prices and reduce risk. However, this can burn a person in two ways--if they end up without the crop to sell (that is why they only sell a portion of what they expect to raise) or if the market really goes up. Buyers of beans can work the market in the same way, by locking in the price for future needs several months in advance. Some people work both sides. For example, beef feedlot operators lock in the selling price of cattle at the time they buy them, as well as the cost of their feed supplies. This way they know the biggest portion of their budget. Now, there are two very useful ways I can think of to work with options that are not pure speculation. The first is income balancing. If the price is higher than you expect for the future (or the stock is not quite in capital gains range yet), you can sell covered calls (or buy puts) to lock in a an effective price. Depending on how you do this, it can have a major difference on the year and possible tax rate at which the transactions occur. A second way is insurance. This applies to limited term securities that have an expirition date. In my case, I had some non-qualified stock options (completely different kind) in IFMX at $.60 that were going to expire in 2 years. I was orderly selling them. In this case, I sold 900 at $27 in October 96. However, I bought about 1100 LEAPS (Jan 98, at 25 and 30) over the next two months, believing that IFMX was going to go higher, costing me about $3000 total; I really thought IFMX could be over $40 before they expired. Even though I lost everything on the 1100 options, it was much better than what eventually happened. I just wish I had done that with a lot more. Instead, I was laid off in May 1997, and sold the remaining 5000 of the $.60 lot in the $8 range, and had another 4000 vested shares (in the $8 range) expire worthless in March 1998. If I had done more of that kind of insurance buying, in 1996, I would have been well ahead.