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

To: GVTucker who wrote (104282)	2/23/1999 11:35:00 PM
From: PAL	Respond to of 176387

Since this is the DELL board, I'll use the DELL Mar 90 options. At the close, buying a call would cost 3 3/4 and selling a put would generate 6 1/8 in proceeds. Net credit--2 3/8. From the trader's point of view, he has a net debit of 2 3/8. He goes out and buys the stock at the close for 87 1/16. Total cost: 89 7/16 (87 1/16 + 2 3/8). At expiration on 19 Mar, the trader is guaranteed $90. (If the stock is below 90, the puts get exercised against him, above 90, he exercises his calls.) The return for a 25 day investment is 9/16, or 0.629%, or 9.2% annualized, much higher than his cost of capital, and for a risk free trade at that. Very good analysis. In the example you are using a short term option (March). We usually deal with LEAPS. But for illustartion purposes, let us use your example. Your strategy gives a rate of return of 9.2% annualized. Period. That is the limit. If Dell goes to 100, the other way will show: profit per share is 100 minus 87 1/16 or 12 15/16 on investment of negative 2 3/8. Of course there is a downside risk. If Dell goes to zero (just for argument sake) the maximum loss is 87 1/16 minus 2 3/8. Therefore the strategy is only appropriate for a long term option on a dynamic stock. All in all it depends on your risk level. If you are comfortable with 9.2% annualized return risk free, then it is that choice which should be taken. But if you want more return, there is a higher risk level.

To: GVTucker who wrote (104282)	2/24/1999 10:00:00 AM
From: edamo	Read Replies (1) \| Respond to of 176387

gvtucker....re: dell puts appreciate your example..you state the "cboe trader" will have the put excerised against him if the stock below ninety...hasn't he taken the buy side of the trade..isn't the put excericised to the seller?, i also believe you state the "cboe trader" will take the sell side of the call trade...if he is the seller, how is he able to excerise above 90, isn't that the right of the buyer? perhaps it's too early in the a.m for me to understand...as far as "apples to oranges", please before you comment and use such words as "bunk", follow the thread....i have NEVER advocated the use of margin and only advocate selling of puts if you have the capacity to have the underlying put to you. if i read your postings you state it is better to use margin to buy the underlying than to buy calls/sell puts as pal stated with opm... let's remain SIMPLISTIC, not worry about how much a cboe trader makes or doesn't make, because it doesn't impact on my or pal's positions... so everyone can understand...basic premise:RAISING CASH FOR FUN AND PROFIT: YOUR WAY (correct me if i misunderstood you): BORROW against MARGIN, pay INTEREST, and ultimately REPAY margin. MY WAY SELL puts against cash or capacity, yes using up credit line(but that's what the lord meant it for),RECEIVING INTEREST, and a strong probability of NO LOAN TO REPAY... give the trader his due, let him annualize at 9.2%, i've annualized over the years with my unsophisticated only worry about what i'm doing method at high double to low triple digit returns...there is risk in any investment, there is also reward...selling puts is fairly conservative if you never stray from some basic rules...which i have posted ad infinitum.. thanks your input...much welcomed, good luck, ed a.