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Technology Stocks : WAVX Anyone? -- Ignore unavailable to you. Want to Upgrade?

To: 24601 who wrote (7194)	5/29/1999 9:56:00 PM
From: andrew peterson	Read Replies (1) \| Respond to of 11417

Turns out that the WinTV boards through WebShopper won't be available for shipping until June 4th--this according to an e-mail I just received from them. That's too bad for me. The closest CompUSA to where I live is in Spokane, about a three hour drive from here. Oh, well. I envy you guys who have been able to get them already. I've been waiting for this for so long for this, I guess I'll just have to wait a little longer.

To: 24601 who wrote (7194)	5/29/1999 10:05:00 PM
From: SlateColt	Read Replies (3) \| Respond to of 11417

Options Definition: A stock option is the right to buy or sell a particular stock at a certain price for a limited period of time. Options are all about leverage. You can control more stock owning options on it than owning the stock outright. But, they are a wasting asset and you could lose your entire investment (or more). A simple example follows that shows the power of leverage: (Lets say you have $5,000 to invest in Wave at $25/share) 1) Buying the stock You could purchase and thus control about 200 shares of Wave. You can hold it until you're old and grey and sell it whenever you want before you realize a gain or loss. 2) Buying the options You could purchase 10 contracts (July 25 Calls) for Wave (1 contract = 100 shares). These give you the right to buy 1000 shares of Wave on the third Friday in July (expiration day) for $25 a share no matter what price Wave is trading at. The July 25's are trading for $5 or $500 (100 shares x $5 a piece). 10 contracts x $500 = $5,000 investment. Now lets look at a few scenarios of what Wave might be trading at and how that would affect your investment vehicle. ===================================================================== Scenario A - At expiration, Wave is selling for $20 a share 1) You've got a 20% paper loss ($1,000) 2) All 10 of your contracts expire worthless and you lose $5,000 or 100% of your investment. ===================================================================== Scenario B - At expiration, Wave is selling for $25 a share 1) You're break even 2) All 10 of your contracts expire worthless and you lose $5,000 or 100% of your investment. ===================================================================== Scenario C - At expiration, Wave is selling for $30 a share 1) You've got a 20% paper gain ($1,000) 2) Your contracts are worth $5 ($30 stock price minus the $25 exercise price) a piece (or $5,000) and you broke even. ===================================================================== Scenario D - At expiration, Wave is selling for $35 a share 1) You've got a 40% paper gain ($2,000) 2) Your contracts are worth $10 ($35 stock price minus the $25 exercise price) a piece (or $10,000). You've doubled your original investment. ===================================================================== Scenario E - August 1st, one week after expiration, Wave is selling for $50 a share. 1) You've got a 100% paper gain ($5,000) 2) All 10 of your contracts expire worthless and you lose $5,000 or 100% of your investment. Your timing was bad. ===================================================================== As you can probably see, you need two things to happen. You need the stock price to appreciate significantly and it MUST appreciate in a timely manner. A week later doesn't cut it (see Scenario E). I'm not advocating using options one way or the other. Options have their place and can be a nice way of paying yourself a dividend on tech stocks which have no dividends using covered call writing. If you want to get serious about options, "Options as a Strategic Investment" by Lawrence McMillan (ISBN 0-13-636002-5) is the bible. ---Slate