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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Trebor who wrote (5048)	5/11/1999 1:07:00 AM
From: Dogbert	Respond to of 15132

Regarding shorting in an IRA, yes one may buy puts or sell calls but only if you own the underlying security and are trying to hedge your long bet. If you are bearish and you are in an IRA with no tax consequences anyway, a simpler and cheaper (no premiums) solution is just to sell the underlying. If you want to be net short in an IRA, you first have to get out of your longs, then take the proceeds and invest that in a fund like Rydex URSA which shorts the S&P. You would own, or be long, the fund in your IRA account, but it would have an inverse investment return to the S&P so it would really be a net short. Regarding the question this weekend from the guy who bought T and sold both call and put leaps on it, he has first chosen T because he views it as a great stock to own, then he has immediately hedged that bet with the options strategy. OK, but what he has done is changed the characteristic of his investment from being a pure equity to more of a bond mix. He got premiums, like interest, but he has to hold the position to maturity to collect them. And he has sold away much of the upside potential on his long stock. Here is the problem. When we invest in a diversified portfolio of long term holdings we do our best to pick big winners. That said, we know that of say 10 stocks, there are going to be a couple of mistakes where we lose our pants, a bunch of middling performers, and one or hopefully two 10-baggers. If you remove the 10-baggers from this portfolio, you absolutely kill its return. They are the reason we take the risk of being in the market in the first place. If the caller has such a portfolio and does his put/call strategy to all the stocks in it, he has guaranteed that his 10 baggers will be called away much too early, plus he has guaranteed that he will buy more of his biggest losers. And he has made these guarantees in exchange for getting some healthy interest. I would rather choose my portfolio as best I can and eschew all the options positions. Simpler, cheaper, and truly an equity portfolio. If I want interest, I'll take some of my money and put it in bonds.