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Technology Stocks : VLSI Technology - Waiting for good news from NASDAQ !!! -- Ignore unavailable to you. Want to Upgrade?

To: TScott who wrote (5420)	3/3/1999 12:27:00 PM
From: otter	Respond to of 6565

No. The 'beauty' (and the danger) of an option under normal circumstances is that it is driven by three major factors: (1) the time value of the option; (2) the intrinsic value of the option (e.g. the relationship of the strike price of the option to the price of the underlying asset) and (3) volatility, in part derived from the volatility of the stock and in part the volatility of the option. The demand for OPTIONS don't seem to have a whole lot to do with much of it except the spread between bid and ask. (options with low demand have a greater spread than high demand options) Time Value: Keep in mind that for the most part, the time value of options has been trashed with this cash offer, in effect, lowering the price of many options below what they would have otherwise been... This is the reason why the price of an April 20 is the same as a March 20). See the LSI example below for another example of the relationship of an out of the money option compared to the price of the stock. Intrinsic Value: Ain't none. See the example below for what time value means. Volatility: You bet, but keep in mind that this is all happening very quickly, and at these prices, a 1/4 point move up is a double. (For an alternate example, take a look at LSI. Current stock price = 26 1.2. March 30s are 3/8. April 30s are 1. Time value - you bet. Value of option based on its relationship to current stock price: roughly the same as relationship of VLSI to the 20s we are talking about) Regarding your comment about a 20% increase, you are absolutely correct. If it turns out in the next six weeks that VLSI is sold for 20 1/4 (discounting commisions), I will break even. Anything less and I've thrown away the $ I just put up. However, at anything over 20 1/4, the returns begin to be relatively impressive relatively quickly, and its for that reason, it is worth it to me to pitch some $ at it. Here is the math, accounting for likely spreads: Sale Pr./option val./gain 20/0/loss 20.5/.25/0 20.75/.5/100% 21/.75/200% 22/1.75 - and you get the idea. Assume, for example, you were to purchase 1000 shares of vlsi STOCK at current price: 17 1/4 with an expectation that the final price would be 22. Your gain would be 4 3/4 or roughly 25%, correct? In absolute terms, you are risking $17,250 in order to gain 4,750. Nice numbers under normal circumstances. Well circumstances aren't normal, are they? By contrast, you might purchase 50 April 20 VLSI calls for 1/4 point each. Your cost: $1250. To deliver the same $ return as the stock purchase alternative, the final sale price of VLSI only needs to be somewhere between 21 and 21 1/2 (depending on what the spread between bid and ask really turn out to be - I'm assuming you won't hold through closure). The long and short of it is that you've put at risk substantially less $ (if that is what you care about) for potentially higher returns - which after all - is what options are all about. IF it does turn out that there will be a bidding war, and IF VLSI finally goes on the block for - 24 (This number has been mentioned often), then my return would be a few points shy of 1400%. I don't expect this, and frankly, if it does happen, we should all thank our personal gods for the gift. If it goes for 20, the additional gain on my other options now trading at 7+ will swamp the loss. On the other hand, if it goes for anything above 21, it will be a definite plus. I am NOT recommending that others do this. I'm sharing it as a technique for those who DO think that the number will be more than 20 to possibly leverage return. As always, you need to do what is right for you and your circumstances.

To: TScott who wrote (5420)	3/3/1999 12:41:00 PM
From: Linda Kaplan	Read Replies (2) \| Respond to of 6565

TS: I can't agree with the comment that if the stock were worth "x" it wouldn't have been trading at "y." We all know of overvalued stocks and undervalued stocks. VLSI has been undervalued for some time now. It's likely that VLSI will not agree to the $17 offer and that it will go for higher. I know that the 34 where it traded not that long ago, isn't likely to happen now, but I do think that at or over 20 is very possible and that 25 is also possible. I picked up some March 17-1/2's yesterday and some April 17-1/2's today. I also cancelled my sell order which would have been filled today, for something over 17. AIM is going to be annoyed with me, but I think we have to get more than that and I already sold some at lower prices. I'm betting on a better price. Linda