tbul@trsvax.UUCP (08/31/84)
#N:trsvax:52900016:000:1587 trsvax!tbul Aug 31 12:30:00 1984 OPTIONS ------- O Due to the leverage factor of most options, they can be a worth- while investment tool. However, since over 60% of the capital used to buy options goes down the tubes, options should be left to the sophisticated investor. O Using options to protect against a drop in stock price is an expensive alternative to the stop loss order (and should resultingly not be used). O Tricky use of options: If a stock shoots up and then waivers in price, consider this strategy: Providing you have a call on the stock, sell the stock short. If the stock goes down, you gain on the short shares and you still have the options. If on the other hand it goes up, you can sell the options and use them to cover your short position! This is used quite often by the pros. O Buy 6 month options instead of 3 month ones. Even though these options are about 50% more costly than the 3 month ones, you have more time to be right and you have more time to trade against the options. O Buy the most volatile stocks you can find for options. You need big price swings to profit. O Diversify on your options. Buy options on more than one stock. O Do not buy all your options at once. Try to spread your purchases like you would in dollar cost averaging. O Buy calls when the market outlook is bleak. Conversely, buy puts when the outlook is good although a call will have a slightly better chance of paying off since the general market trend is upward. O Buy options on quality stocks. O Remember that small companies generally outperform large companies