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Here's my take. The reason why the call is cheap is because Dell's volatility has declined greatly from former years, and that's not likely to change this year. While Dell is certainly selling more computers, it also has one of the highest computer stock p/e's. Stocks generally decline toward the end of August. Will the call options pay off? Maybe, since the strike price is close to the current stock price. However, consider the fact the option is expensive. If Dell stays below the strike--a good possibility in this market--then you will probably lose your entire investment. On the other hand, there's really nothing to boost the stock much in that time period. No earnings. Maybe a news item might help, but even good news won't boost it much nor for long, and there's no way to forecast that. So considering that the profit potential is negligible, it's probably not worth the risk. Moving further in time, September probably won't be too good, either, since, historically, September is the worst month for stocks. There's always a steep decline in October, and while November and December are usually good, I don't think it will happen this year because of the Y2K fear. |
