Closing out profitable option positions

[TRaffertu@xxxxxxx]

       Dear James,

        In responce to your post of 8/10/97, there are four stratagies which
you could follow in this situation.
         1)  Do nothing and hope for continued advances.
         2)  Liquidate and take profits.
         3)   "Roll up" -  Sell the long call, pocket the original
investment, use the                           remaining procedes to buy as
many out of the mony call as possible.
          4)  "Spread"  -  Creat a bull spread by selling out of the money
calls against the current long position, preferably, taking at least the
original cost of the long Call.

         Each stratagy has its advantages and disadvantages:
               If the stock moves up drmatically the best is the roll up, the
worst is to liquidatd.
                If the stock rises slightly the best is to do nothing, the
worst liquidate or roll up.
                 If the stock remains relatively unchanged, the best is the
spread, the worst is the roll up.
                 If the stock drops the best is to liquidate, the worst is to
do nothing.

What's a mother to do?  That depends on your risk tollerance but notice the
spread is NEVER the worst option.

A  word of caution about tight stops.  They do not totally protect against
loss!  If bad news hits the stock (and the option), will be delayed at the
open and will gap lower, past your stop, say to 1/16.  This can also happen
in a fast down market but usually not to the same extent.  Remember a stop
order becomes a market order if the option trades through the stop.  This
means you get the current bid price, which can be lower, not necessarly the
stop price. 

Also with an option this thinley traided (spread of 1.5) you could not sell
at 5 except on the strongest up day.  I have found the best you can hope for
is to split the bid/ask say  a limit order of 4.25 on an average up day.  You
only get 5 if someone is willing to pay that price, otherwise you only get
3.5 if you sell at market. I will not go into how brokers munipulate the
spreads but the have and the SEC does not like it.

Finally I may be wrong but you sound as if you are new to trading options.  I
strongly recomend  you read several books on options before proceding with
more trades.  An excelent one is "Options as a Strategic Investment" by
Lawrence G. McMillan.  He goes into great detail about the stratagies
outlined above.  Also he has a web site with a link from the Real Traders
site.

                                                   Good luck and good
trading,
                                                    Ray Raffurty