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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Gary Ng who wrote (60435)	6/3/1999 10:36:00 PM
From: Elmer	Read Replies (1) \| Respond to of 1583377

Re: "BTW, what kind of of free money one can get ? I believe each contract needs to be secured by 100 share worth of free cash of the underlying stock so it sounds to be a pretty small amount(well I know nothing about this game)." Puts can be secured by cash or margin balance. In the case of cash, it continues to earn interest as well. In the example of AMD June 17 1/2s, the bid is 11/16. That equals about 4% of the potential risk for 2 weeks exposure, or an annual rate of about 94%. Not bad if you are willing to take the risk of being assigned AMD @17 1/2. Not bad at all if you are thinking of buying AMD anyway. With assignment your cost would be 16 11/16s. My hunch is the K7 hype will keep the stock afloat. Your mileage may vary... Batteries not included... EP

To: Gary Ng who wrote (60435)	6/4/1999 12:52:00 AM
From: Petz	Read Replies (2) \| Respond to of 1583377

Elmer, Gary -- seems like cash-backed puts should be legal in an IRA account but they're not. Just wanted to add that most brokers only require 25-30% of the price of the underlying stock as cash margin. If the put is out of the money, they even subract out the amount by which it is out of the money, but usually have an absolute minimum of 10% of the stock value, even if the stock is WAY above the exercise price. So, for example, with my broker: Margin to sell 10 AMD June 17.5 puts = 25% * 1000 share * 17.8125 = $4453. But from this subtract 0.3125*1000 (312.50), since AMD closed at 17.8125. So I could put $4,141 cash into the account, write the 10 puts and collect $625 (5/8 close). I'll have a cash balance of $4,766 earning interest while I wait for the puts to (hopefully) expire. Personally in this case I would prefer to write the July 17.5's (closed at 1.625) but look to buy them back if they lose over half their value. On a daily basis, the cash balance required to maintain the position is 25% of the stock price, minus the amount out of the money, plus the current value of the puts I am short. Most brokers require a reasonable amount of liquid assets and a year or two experience buying and selling options before they'll let you in on the option writing game, but I agree with Elmer, its better than risking 100% of your capital on calls. Petz