Harry Gross: Be wary of stock options

Dear Harry:

I have been intrigued by your recent columns on options. What is your view of my buying call options on the stock of a company that I feel certain has a good future? If I buy the stock, it will cost me about $5,000 for 100 shares. If I buy options to purchase it at $55 a share, I can control 10,000 shares for the same $5,000. The options will be open until July 31. If the stock rises to $60 before then, I will have made $50,000. That's a lot better than the $1,000 I'd make by buying the stock. I learned about options by reading a book on investments. I have not yet discussed this with my broker. So far, I have bought only blue chips. I know about this company because it has just almost doubled its purchases of parts from the company I work for. I don't think this constitutes insider information.

What Harry says: Did you not look at the other side of the coin? Suppose the stock does not reach $55 a share? You would then be out $5,000 if you let the options expire, or you'd pay more than market value for those you exercise. If you buy the stock, you'd make money on any sale above $50 a share. Moreover, your broker will have to evaluate whether you have sufficient market know-how to enter into speculation. There is something else to consider. Suppose the company's increase in orders to your employer is merely a replacement of orders now going to another supplier? My advice: stay away from speculation.

Write Harry Gross c/o the Daily News, 400 N. Broad St., Philadelphia, PA 19130. Harry urges all his readers to give blood - contact the American Red Cross at 800-Red Cross.