Replies to post #18425 on Advanced Micro Devices Inc (AMD)

[dougSF30]

alan,

The only person talking about "randomly" grabbing (buying? writing?) option contracts was you. The rest of us were pointing out that your blanket statements regarding option positions were incorrect and/or irrelevant. There is nothing magical about being long common stock. It is merely one point in a vast continuum of risk/reward strategies that one may adopt. Option strategies are a superset of stock strategies and contain more, less, and equally risky positions.

The End. (for real, this time :) )

Doug

[HailMary]

speculative and hedging.

Buying stock is speculative - you do that, right? Why do you believe you are any better at buying stocks than anyone else? How do you know you're not the guy who loses 10% every year? You can set up an option position on an underlying stock that can be more risky, the same risk, less risky, or anywhere in between than buying the shares directly in that stock. This is the beauty of options. You can make yourself a customized position. You'll learn this if you take some time to get more experience with them. You will pay a small 'fee' for this which equals the current option spreads (.05-.10 per share) plus the extra commissions (and possibly the time value depending on the strategy). The more complex the strategy, the more this 'fee' will be. For this 'fee' you get the flexibility of choosing how you want to play a stock.

I would be willing to bet (heck I already am in a way) a put writing strategy on QQQs (with a stop loss like I previously posted) would return more over a 10 year period than just buying QQQ shares. There is a factor we are not considering though. Taxes. Short term vs. long term gains. I think you would only win out in a tax sheltered account like Elmer is doing.

And LOL, you should never buy a random spattering of options. You will get zero or less, guaranteed. I'm starting to think that was your original point, and if so, yes, you have to be smart enough to choose the strategy that fits fairly well with a situation. You don't have to be any smarter about the underlying stock though.

You are giving yourself flexibility if you learn how to use options.

HailMary

[smooth2o]

Alan:The key learning on top of my original position is if you grab options in a "non random" fashion you can do some useful things.

I hate to jump in here, but, it gets a lot more complicated in the real world. When you have someone who is retired with a large portfolio who needs 6.5% per year (you and maybe me?), you tend not to jump in and out of stocks with large sums of money. Hence, those of us that back Intel in the long term and play AMD in the short term with smaller sums. I think you mentioned that you invest for the long term and don't use a lot of options for downside insurance (buying puts, selling calls).

In the ideal world, you would want to be in stocks that appreciate at the average 10% per year and take the money you need to keep "everything going". It's sad, but the more you have, the more you need. For example, we are in a 17 year old house (paid for), and to move to a new 4000sf house incurs an increase of taxes from 6K to 24K per year! That represents a 180K stock investment per year plus a capital outlay of 400K thereby reducing income by 40K per year.... and so on.

In the real world, you have to go long term for the advantageous 15% CG tax, short term is not an option (of which is what I keep reminding my investment managers). As anyone would expect, the tax free IRA account is small (usually <1M for us working folk) and kept to short term trading, and the large account is not tax free.

My question is this as a result of your statement:
Alan: I still personally believe there are better ways to do this type of adjustment than by using options, but I suppose that is just a personal preference.

With what I stated above in mind, how can you stay long term and not use at least, long term puts and calls to protect against volatility?

Smooth