SENSIBLE SPECULATING WITH PUT AND CALL OPTIONS

The most successful investment innovation in many a day goes by the name of CBOE--the Chicago Board Option Exchange. Calls--the right to buy shares of a stock at a fixed price during a fixed period of time-- are currently being traded in terrific volume; puts--the right to sell shares at a fixed volume during a fixed period--will be traded in the near future. There is a lot of money to be made in puts and calls because of the leverage--only the right to buy or sell is being traded and that right is purchased for but a fraction of the worth of the shares involved. $400 will buy the right to purchase 100 shares of Tandy at $35 a share anytime up to January 30th. As Tandy is selling at $33, the right is worthless unless the stock moves to over $35. If the stock rises to $50, the option is worth $1,500 and the investor has made a $1,000 profit on a $400 investment. If the options do not rise to $35, all of the investor's money is lost. For this reason, the main appeal of options is speculation. There are other functions: greater income, protection of capital, and tax advantages. All of these are described fully. The subject matter is technical and paper and pencil are often needed to follow the action. Nonetheless, Gaylord writes briskly and covers everything one needs to know about options-be they naked, stripped, spread, strapped, straddled, or sandwiched. Rewarding for the investor who wants to make or conserve money.