Last week we started a discussion on going long, going short, buying calls and puts.

Known as option strategies, the shrewd (and lucky investor) can enhance both the profits and the losses of stock he or she is tracking. Options can be traded on their own and in conjunction with owning the same stocks.

When you buy or sell an option, you are receiving the right (or obligation) to trade (one way or another) on the value of 100 shares of an underlying stock.

What does that mean? Example: We will use Ericsson cell phones because Bermudians just love walking around with those phones practically velcroed to our bodies.

Already various models are decorated to coordinate with various outfits.

Anyone for a cell phone permanently hooked to the side of your ear? No laughing, it is virtually guaranteed to happen.

We are a nation of impatient people. As stated in the Age of Access, we no longer rely upon the economies of scale to do anything corporately or personally, it is now the `economies of speed'. And I have just wandered off the subject, my apologies.

What is going long? The first way to go long is taking a position in a stock or a group of stocks by owning them, simple right? Going long also means that you are betting this group of stocks will rise in price, as you probably would not want to keep them if you throught the chances of the price dropping were significant.

In options, going long is a little different, you buy a call. What's a call? Calls are options for the bullish investor (meaning that you expect and believe that stock values and the overall market will continue to rise.) Long calls are the right to buy a certain stock at a certain price in a specific time frame.

You actually pay a market maker for that right. He or she actually accepts money from you (at a premium) and takes on the obligation to sell you that stock under the same stated conditions above.

You are betting that Ericsson stock whose underlying market value backs the call, will rise in value. You can be both long on Ericsson stock and buy calls. Options are usually sold in round lots of 100. Let's say they cost you around $5 each.

Example: You buy 100 calls at $5 for the right to purchase Ericsson at $60 a share (the strike price).

You think that Ericsson is coming out with a new innovative product, which it did last week, and it is selling like hotcakes! A few days later correctly betting on its momentum, the market value of Ericsson stock explodes; it is the darling of the day! It rises to $80 and you exercise your right to buy 100 shares at $60 per share and immediately cash them out at $80.

For $500, you only own the stock momentarily and have leveraged on the market.

What a day for you! With those profits, I would immediately walk into a gorgeous Front Street jewelry store and buy the heart-shaped diamond earrings displayed in the window (and that I have just coveted from afar).

Please note, I do not know the owner of this store, but I sure covet those earrings. Don't you just love the free market, on and on it revolves! Money in and money out, hopefully profits on both sides! The owner of the store takes my money and goes to his investment advisor and says: "I think this Ericsson stock is just falling apart, it is going to tank. Why would anyone in her right mind want to walk around with a phone stuck in her ear when she can wear these exquisite earrings!'' So he decides to buy a put, because he is a bear and is betting that the stock value will fall. He also owns some Ericsson stock.

What is a put? This is the right to sell a stock at a specified price during a specified period of time. And the amazing thing about puts is that by taking the contrary position (that the stock will fall in market value) you can make money (you get the premium).

And again, you can also own the underlying stock or not own it. This is a way to lock in the gains on a stock before it drops through the floor.

Example: Same stock, Ericsson, same starting price $60, and it goes absolutely crazy and climbs to $100.

The market is swinging wildly all day, as it has up and down two hundred, three hundred, four hundred points each way. You really want to make a killing on this stock but you are afraid you may end up at the end of the day with a stock worth $55.

So you buy a put, you pay a market maker for the right to sell the stock at $100 per share, thus locking in your gains. But wait a minute, how do you sell what you don't own.

Simple, when you exercise your option, you immediately buy Erricson cheaply at say $75, then put it to the option writer, who has contracted with an obligation to buy. If you are successful, the cost of the premium paid for the put is nowhere what would you would make in ultimate net gain.

And again, you could also sell your put; it is valuable now in a declining market and will fetch another premium price.

Going Short: What happens if you don't own the stock or want to own it? Taking short positions without the ownership of the underlying stock is one of the most risky strategies in the market and appropriately is called `going naked!' That is the subject of another article next week and I leave you with that thought. More on option strategies next week.

Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or any other investments.

Readers needing specific assistance should seek professional advice from their financial advisor. Martha Myron CPA CA is Bermudian, a Comprehensive Financial Planner, a NASD Series 7 licensed investment broker and a US tax practitioner.

She is Programming Chair for the Financial Planning Association/Bermuda (formerly IAFP). Questions regarding this article may be sent to her at 234-0290 or email: marthamyron y northrock.bm