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Harley,
ASND is more speculative then my usual picks. Sure I could be
wrong, I've been wrong before and will be wrong again <G>. That's why
I'm nibbling with only 5 LEAP calls. I'll admit I was swayed by the
take over rumors, but the pick is backed up by the chart and the
numbers. As for shorting ASND, I never fight the trend and the down
trend has clearly been broken.
I don't claim to be an expert, but my view on options is that it
always pays to open long positions with long term options (LEAPS) and
open short positions with short term (current or next month) options.
The reason is that options are a decaying asset since their price is
made up of actual value plus time value. For Out of The Money (OTM)
options, there is no actual value, only time value. Time value decays
each day you hold an option with the decay curve being relative flat
when there is a long time to expiration and then the curve steepens,
decay accelerates, as expiration gets closer. The time decay per day
is largest during the last few months prior to expiration and really
steep the last two months.
For a long position, it's true that shorter term options cost
less and you will make a higher percentage gain on them if you are
right and the stock rises right away. However, if you are right and
your timing is off a little, the stock stays flat for a month or two
before rising, you will have a big loss with short term options. With
LEAPS you have a longer time to be right and still make excellent
profits. My Travelers LEAP position was a good example of this, I
opened it on July 17, 1997 and closed it a few days ago for over a
100% gain. If I had bought, short term calls I would probably have
lost 100%. Also with LEAPS, if you are wrong and the stock stays flat
or drops, you want to minimize time decay so your loss isn't much more
then what the loss would be in holding the stock. A OTM LEAP position
that is stopped out after a month or two of sideways or down move will
only show the loss associated with the stock drop plus the time decay
for the days held and there will be value left. A OTM short term
option will be worthless after a couple of months of sideways or down
action.
To recap, for long option positions I want to minimize daily time
decay so I buy LEAPS. For short or covered call positions, I want to
maximize daily time decay so I sell current or next month options,
either OTM or slightly In The Money (ITM) options.
Hope that made sense <G>.
Jim
-----Original Message-----
From: Harley Meyer <meyer@xxxxxxxxxxx>
To: Jim Greening <JimGinVA@xxxxxxxxxxxxx>
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Date: Sunday, December 07, 1997 12:41 AM
Subject: Re: Weekly Picks
>The ascend leap .gif came through, but the second .gif I assumed you
>forgot to attach. Anyway. Question: Is Ascend speculation on your
part?
>Nothing wrong with it. But am just curious. You said it was based
upon
>the rumors of the take over. But would be nice to hear it from you.
>
>Also Ascend is also in a class action suite. Did you consider that?
Also
>I heard on RealTraders email that Ascend has had problems with their
>relationship with analysts. For the same reason that they are being
sued
>by share holders. They didn't paint a truthfull picture of earnings
>growth. They joked about the company shaould of been descend instead
of.
>
>The general comment i hear is that the industry that Ascend is in has
a
>great long term growth potential. But does Ascend? Is Ascend another
>Centenial Technology?
>
>Anyway enough said. Personally If something jumps that fast on rumors
I
>might do a bit of hedging. The short term momentum up will slow very
>fast if there isn't an anouncement soon of a take over. You are
looking
>at Jan99 40 calls. A long way out for 4+ bucks. I would turn around
and
>buy some slightly out of the money puts (something cheap), but only a
>few months out. The point here is if the lawsuit uncovers something
that
>drives ascend to zero or discourages a take over then you have some
>protection. If there is a take over nothing lost but the premium of
the
>puts against the profits. Won't explain option since you know more
than
>I. Also if it drifts back down you can capture some gaines in the
short
>run. Just an idea.
>
>Harley
>
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