The nice aspect of selling the puts is that there is usually a pretty good premium to work with, likewise the calls have a hefty premium so your better bet is actually selling naked puts, say an Aug 110, as long as you don't mind owning the stock. Of course, if you want to play out a little dicier scenario, sell a naked call, let's say an Aug 125, to add to the put. You are setting up a range in which you believe the stock will settle and you can capitalize on your thinking. If you get worried, you can buy an Aug 130 call and feel safer by having hedged your naked call position. Maximum downside would be $500, but you probably made up for it by selling the put. This is all a bullish scenario anyway, so if BRCM tanks (which I doubt), you've got to start thinking through the converse of the above example.
For what its worth, I think I'll look at the actual prices for these contracts next week and see if this idea can make some money. Again, all of this is predicated on the hefty premiums with BRCM options. Some issues wouldn't work out as nicely this way. |
