Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: freeus who wrote (106211)	3/2/1999 2:47:00 PM
From: yard_man	Respond to of 176387

OK, assuming DELL is 100 around earnings in the latter part of May. I guess it would be past May expiry so June would be the closest month's options you could buy. Right at the money would be most expensive -- perhaps a week and a half before earnings are released you buy 1 June 90 put for each 100 shares of DELL that you own. If DELL tanks -- drops rapidly below 90 after earnings -- you lose no more than 10 points on your holdings as the puts increase in value $ for $ beyond that point to offset any paper loss you have on the shares. Actually if the fall is just short of 90 or to say low 80's you will have a little more protection than I've just indicated. Maybe a more concrete example: say you purchased an 90 put for 2 while your stock is at 100 DELL drops to 83 after earnings -- at that point the put option is worth 90 - 83 = 7 plus a little -- more maybe 8 1/4 or so Your unprotected loss on paper would be 100 - 83 = 17 a share Your protected loss would be 100 - 83 - 2 + 8 1/4 = 10 3/4 This is a rather mild result -- the larger the drop the greater the worth of the insurance. If DELL didn't tank and instead rallied to 110 you see only 8 bucks of that rally ... See?