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Intuit Inc. Message Board

  • Myth_Mangler Myth_Mangler May 11, 2000 10:11 PM Flag

    Making money with Intuit

    If you strongly believe that Intuit is
    undervalued, here are some low-risk ways to make some money.


    Sell the June $30 Put (approx
    $3.75)
    ------------------------------------

    Each contract (100 shares) sold results in $375 being
    deposited in your account on the next business day. Let's
    use some round numbers.

    You sell 10 contracts
    (obligating you to buy 1,000 shares at $30 if the market goes
    against you)

    a) You receive $3,750 for the
    sale.
    b) IF the options are exercised, you need to have
    $30,000 to buy the 1,000 shares. But, you received
    $3,750. Therefore, your net cost for the 1,000 shares is
    $26,250 (plus commissions). So, you've actually paid
    $26.50 per share -- which, I submit, is smarter than
    buying shares at $30.
    c) IF the market heads up, you
    have no Intuit shares, but you get to keep the $3,750
    if Intuit stays above $30 through the 3rd Friday in
    June. Not
    bad.
    ========================================

    Or, sell the June $25 Puts for $1.625 to reduce: a)
    your premium (boo!), b) your chances of having the
    shares put to you, and c) your cost of acquiring Intuit
    if the shares are put to you.

    If you haven't
    obtained authorization to sell naked PUTs, this may
    inspire you to get started. Your liablity is limited. If
    the stock price plunges precipitously, you can
    usually buy the PUTs back (at a higher price than you
    paid for them) to avoid having to overpay for the
    stock itself.

    It's a profitable strategy that
    has very little risk. Just don't confuse selling
    naked PUTs with selling naked CALLs. The latter is
    something that you probably don't want to
    do.
    =======================================

    If you strongly believe that Intuit's price will
    plunge, BUY the May or June $30 PUTs instead. They are a
    low-cost way to take a short position.


    =======================================

    If you don't have a strong belief, join me on the
    sidelines. Quite a show, eh?

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Mustbetrue40 are you a cheerleader for the shorts? If you don't like this stock then go to another board. I think were all tired of hearing your B.S.

    • mustbetrue40/gatesismyname/ntopperboy/outoftechs/notintuit generally tends to post variations of the same
      message over and over again. It doesn't have to be a true
      and accurate reflection of market conditions for this
      to occur. About all you can be sure of is that it
      will be negative (and probably a distortion of the way
      things really are).

      Slower growth...gee, is this
      really news? Yawn.

    • Slower desktop growth ... expanding E-Finance
      growth. Old news.

      Nobody's trying to drive the
      price down.

      However, I would agree that INTU,
      below $40, is quite cheap for the long-term investor
      ... or the short-term investor for that
      fact.

      Suzie

    • yesterday.....check Yahoo news again....it
      was part of the transcript. Maybe you should
      read more than just headlines before posting.

    • They are probably purposely trying to drive down the stock price so they can buy in...they are just trying to manipulate the price...i'm long...i don't care what they say....

    • going on here....This is not old it just came out 1 hour ago on yahoo.

    • Company says slower GROWTH!!!!!!!!!Wow.How did everyone know before us?

    • Your memo has me stunned. My next sentence
      literally means what it says and has no editorial content
      attached to it. I have no clue about what you're TRYING to
      say -- or, equally possible, I have no clue about the
      meaning of what you SUCCESSFULLY said.

      Or, to put
      it briefly: ????

    • i just saw that 48k block sell go through, friggin' scary.

    • Thanks for the explanation of "puts." I have been
      and continue to be uncertain about the end game when
      dealing with options. If one fails to do anything before
      his/her put expires I assume his/her right to "put" the
      shares to the seller of the put expires as well. Let's
      say I hold 10 put contracts (1000 shares) at
      $30July2000 and that stock is selling at market for $20 on
      the third Friday of July. I cover my put (short) by
      selling it for around $10 a share, the difference between
      that day's market price and the $30 put price, less
      transaction costs.

      At some point, before close of
      business that Friday, isn't it necessary for a purchaser
      of my put to actually "put" the 1000 shares to the
      original seller of the put or would that purchaser, in
      effect, sell the put back to the original seller with no
      stock changing hands?
      If a holder of that put, which
      is "in the money" that third Friday, for whatever
      reason, is unable to cover, is the value of the put lost
      to that holder without recourse? What if time
      expired that Friday because a broker failed to execute a
      timely order to cover (sell the put or "put" the shares?
      Sorry this post is so long. Any additional input you
      can provide is much appreciated.

      • 3 Replies to nborst
      • August's response pretty much covers what I'd
        have told you -- and with less verbiage.

        The
        major trick with understanding options is to be clear
        on whether you are its seller or buyer. Let's just
        stay with PUTs for the purposes of this memo.


        A PUT carries with it the RIGHT (but not the
        obligation) to purchase the stock from the seller at the
        strike price. The buyer has no obligation at all. The
        seller, however, is obligated to buy the shares at the
        strike price if the buyer "exercises his right" and
        "puts the option to him." (The seller accepted a
        premium. So, it makes sense that he has taken on an
        obligation.)

        As a buyer of a PUT, your goal is usually NOT to
        exercise the option but to trade the option itself. In
        other words, you would buy the PUT on the hope that the
        stock price would fall beneath the strike price --
        preferably far beneath it. Then, the option would have
        increased value and you could sell the option for a profit
        -- if you don't hold onto it for too long. The idea
        is to sell the PUT as soon as the stock reaches a
        target price that you had in mind before buying the
        option.

        A conservative use of PUT buying is to insure
        yourself against a price drop in a stock that you own.
        Let's say that you bought INTU for $35. You might, if
        nervous but not nervous enough to sell the stock,
        consider buying the $30 June or July option to hedge your
        long position. If the price were to fall to $20, you
        could recover a portion of your loss by turning around
        and selling the option which would have increased in
        value.

        The price of an option depends on: a) its intrinsic
        value (the spread between the strike price and the
        stock price), b) its time value (options are
        deteriorating assets that lose their time value at an
        accelerating pace as the strike date becomes closer), and c)
        the volatility of a stock (the wild card). A stock
        with low volatility will tend to see its intrinsic
        value move dollar for dollar with the stock's price
        (less the reduction in the time value of the option). A
        stock with high volatility, however, will appreciate or
        depreciate at a slower pace since the price fluctuations
        mean less.

        Selling a PUT is very low risk if
        you only sell them on stocks that you like at a
        strike price that is attractive to you as a point to buy
        the stock. The worst case scenario is that you buy a
        stock for the price that you otherwise would have been
        glad to buy it anyway -- but for a discount since you
        received a premium for selling the PUT option -- and the
        stock keeps on sinking. No matter how you cut it,
        you've bought the stock at a discount to the price that
        you were willing to buy it for.

        The best case
        is that the option sold expires worthless. You keep
        the premium and have no more obligation. And, if you
        wish, you can sell the PUT option all over again for a
        new expiration date. (Or, alternatively, the stock
        was put to you at $30 and the stock subsequently goes
        up in price to N's $90 target. Now, you have both
        the profit from the stock and the profit from the
        premium somebody paid you for taking the stock off his
        hands. How sweet!)

      • Myth will probably do a better job of explaining
        this than I but, in short, if exercised you are
        obligated to take back 1000 shares of INTU at a cost of
        $30,000 (using your example). Be mindful that this can
        happen at any time...not just on the expiration date.
        That's why Myth emphasized that you choose a strike
        price at which you would not be uncomfortable taking
        those shares. That is also why your broker will require
        you to maintain much equity in your account before
        allowing you to undertake this strategy. If you trade
        options, you must watch your stock like a hawk so that you
        can take defensive action before things get out of
        control. Remember, options involve leverage and wide
        fluctuations in premium can occur in a blink of an eye.


        If you wait for the day before expiration, the
        damage may already be done.

      • p/e, p/s, hell, all the ratios look GREAT but the
        price keeps falling and falling. so what's a guy to do?
        how am i gonna feed&clothe my family now? sheesh...at
        this rate i will have negative funds in my account by
        the end of the month.

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