OK - some real numbers from Friday's close to illustrate the above scenario:
(commissions are variable, so not accounted for in this example)
Sell a naked July 120 put at the market: 13-7/8, $1387.50
Sell a naked July 125 call at the market: 4-7/8, $487.50
Buy a July 130 call at the market: 3-1/2, ($350.00)
Total net to your account: $1525
Now, let's say BRCM settles on 7/16 at $122-3/4: you keep it all and you are not buying the stock. Plus you make more than having been long and borrowing $11,200 for a month.
A little worse case, let's say BRCM settles on 7/16 at $133-3/4: you make $1000. Take the $1525 net you had from the total transaction and subtract $500 for covering the naked call, plus $25 for the lost profits above 133.5. Hence, $1525-500-25=1000. Probably covers your margin interest, right?
Basically, you've got $1525 to deal with. Until the stock hits 140-1/4, you've got some profits. Anyone care to make sure I got this right? No guarantees.
|
