hdt@sunybcs.UUCP (Howard D. Trachtman) (03/07/84)
Because the tone of mail I received was positive, here is some
advice. If people think this is inappropriate to this newsgroup I will
mail it to only those interested.
Disclamer: This is not an attempt to sell any of the following securites.
The offering is only made by the prospectus. Howard Trachtman may have
a position in any of the following securities.
(I know its lengthy but I wanted to be legal.)
I am assuming everyone is familiar with puts and calls. If not I
will mail an explaination to those interested or post to the net
if there is enough demand.
The following prices are from Tueday's Wall Street Journal and are thus
one day old.
The following selection is an arbitrage in IBM options, with a
gaurenteed profit.
IBM closed at 111.
Buy 1 100 strike July call at 14 3/4.
Write 1 covered 110 strike July option at 8.
Buy 1 October 120 put at 10 1/4 (or the July 120 put at 10 if you can't get it)
Gross cost $1700. With estimated commissions the total cost is $1800.
Regardless of the price of IBM on July 20, 1984 you will have a $200
(2000-1800) profit or more depending on what the time premium of the
October vs. July put is. This is a 10.10% profit in 15 weeks, which is
(according to my calculator calculations a 40.1% profit/year.) There
is no risk at all assuming when you place the order you don't pay more
than a 7 point preminum on the 100/110 spread and that between the time
that order is executed and the put is bought IBM doesn't move more than
2 points. That is a realy possibility in this market.
The following selections are all low priced options and their current
price. They all expire on March 16. I would only buy them if
I could get them at a 1/16 within the next week. The reason for this
is that 1/16 is the lowest price the option will trade at, and you
probably could sell them on 3/13 or 3/14 for the same 1/16 minus
commissions. As commissions on low priced options are high,
I would suggest buying no less than 32 contracts ($200 worth).
Brunswick is @ 25 5/8, March 27 1/2 call 3/16
Mark Kay Cosmetics 13 5/8 March 15 call 1/8
The following is a so-so bet at 1/8, a dynamite buy at 1/16 during
the next 3 weeks:
AT+T new (trading at 17 3/4 has been as high as 21/2.
The April 20 is at 1/8. It was bid yesterday at 1/16 so you might
want to try and get it. Some of you who work for ATT+T might
want to exercise some of their options even if it ends up out
of the money by a little bit (save on commissions).
Asarco is at 34. It's a metal stock. The march 35 call is at 9/16
It might be worth buying at 3/8 or 7/16. THIS IS A PURE GAMBLE.
Hecla minining is at 22 1/8. A fair bet (with the plan of exercising)
is the March 20 call at 1 15/16. Hecla mostly mines silver, asarco
mines mostly copper, silver, and gold (in that order).
A very intersting play is the Merrill Lnych Apr 25 call at 3 1/8.
Merrill Lynch is trading around 27. I'd be willing to pay a 1/2 - 3/4
point premium on this one.
For those who like to ride naked (very risky), consider some naked
writing of some strips and straps of Digitial Equipment. Be sure
to cover yourself by actually owning some stock in roughly 1/3.5 naked
calls. Mail me for more specific instructions.
Two stocks that I think have been strongly oversold and are worth bargain
hunting for are Coleco (10 1/4-11) and Long Island Lighting (7 1/2 - 8)
I wouldn't buy either at these prices and haven't done enough research
on them but would definately buy them if they went any lower.
I have a couple of penny stocks to recommend but I'm going to hold off on
them until I can track their technical records some more.
Thats it for stock, now some commodity selections:
Copper is definitely undervalued. The question is whether it will test
the recent lows of ~60cents. I'd buy the May contract at 67.75 buy
with about 3x the minimum margin requirements. I'm looking for 80 cent
copper but like I said be prepared to see a drop to the 60-62 cent levels.
I still think Silver is undervalued compared to Gold. I've been long
(physical possession) silver for a while. Unfortunately, silver haz
run up so much recently there's room for a healthy correction.
Then again, we may never see silver as low as $10/oz in our lifetime.
I'd buy May silver at $10.21 and put at stop in at 9.50/9.60
To hedge your bet, you might consider buying some of the Gold Aug 400
puts trading at 8.50 ($850/100 oz). I'd buy roughly 3 puts for every
4 5000oz silver contracts.
Thanks about all for now, flames to the address below:
Howard D. Trachtman SUNY/Buffalo
{hao, pur-ee, uwvax}!seismo!rochester!rocksvax!sunybcs!hdt (UUCP)
hdt.buffalo@rand-relay (ARPA)
US Snail: 2080 Niagara Falls Blvd.
Tonawanda, NY 14150-5545 (use them all, if you dare)
--
Howard D. Trachtman SUNY/Buffalo
{hao, pur-ee, uwvax}!seismo!rochester!rocksvax!sunybcs!hdt (UUCP)
hdt.buffalo@rand-relay (ARPA)
US Snail: 2080 Niagara Falls Blvd.
Tonawanda, NY 14150-5545 (use them all, if you dare)bruce@hp-pcd.UUCP (03/14/84)
I'm afraid I don't understand the logic of the strategy with IBM
calls and puts. Is it possible that you are assuming that you
own IBM stock to cover the call? Regardless of that, I disagree
with your assertion that "there is no risk assuming...". It
seems that as the stock rises above 110 you start losing money.
This is the way that I see it:
Long Short
1 100 call @ $1475 1 110 call @ - $800
1 120 put @ $1025
------------------ -------------------
cost =@ $2500 cost = - $800
Total cost = $2500 - $800 = $1700 (as you stated).
Now on July 20, if the stock is at 120, your position looks
like this:
Long Short
1 100 call @ $2000 1 110 call @ - $1000
1 120 put @ $0
------------------ --------------------
Value = $2000 Value = - $1000
Total value is $2000 - $1000 = $1000.
You have paid $1700 (plus commission) to take this position.
You can receive $1000 (less commission) by closing out this
position. Thus you have lost $700 plus the commissions.
This isn't what I'd call "at no risk".
Even if you assume that you own stock to cover the call,
you are still risking your possiblility of making money
by an upturn on your stock. I don't consider this without
risk either.
Am I mistaken? Is there really free money here?
Bruce Stephens
{hplabs!hp-pcd!bruce}