Option Investor
Market Wrap

Jim's Plays for 02/20/2000

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AFFX MAR-280 $20.50
ANAD MAR-140 $16.00
BEAS MAR-120 $16.88
BVSN MAR-170 $17.38
BVSN MAR-180 $20.13
CMDX MAR-120 $14.13
DITC MAR-165 $15.25
EMLX MAR-125 $12.13
HGSI MAR-165 $13.38
HGSI MAR-170 $16.00
HGSI MAR-200 $18.38
INSP MAR-200 $23.13
ITWO MAR-260 $25.88
JMED MAR-075 $04.63
MSTR MAR-170 $19.13
PUMA MAR-100 $10.13
SILK MAR-200 $17.13
TERN MAR-150 $14.75
TERN MAR-180 $13.75
TIBX MAR-230 $25.13

My average return if I held them all to expiration would be about 36%. This will not happen. Several, JMED, MSTR went negative on Friday and I did not close them due to the market drop. I am waiting to see if we get a rebound on Tuesday. If not I will close for the loss and forget them. Some of the others are $20-50 out of the money and the premiums will drop to almost nothing next week as March becomes the current month option. I will close those for $1-2.00, free my margin and sell something else. Once the market stabilizes I will put a GTC stop loss on the ones that I am not closing and wait them out.

Contrary to what Janar has been writing I think the naked put strategy is one of the best available. I am happy to "cap" my returns on this part of my portfolio at 30% per month. Compound that for 12 months and see what you get. I am very comfortable with the risk because I think it is less than straight calls. With selling time the only way you lose is if the stock drops fast and hard. If it drops slow, stays flat or goes up, you win. You can protect yourself against the first event with stop losses. If I sell a put @ $20 and set my stop loss at $25 then I will incur a 25% loss. By spreading my capital across 20 stocks I will get stopped out on several but many more will expire worthless for a full profit. Oh well, each to his own.

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