Novell (NOVL) dirt cheap, good buy? Message Board

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Technology Stocks : Novell (NOVL) dirt cheap, good buy?

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To: E_K_S who wrote (11031)	4/10/1997 11:42:00 PM
From: Paul Fiondella	of 42771

Heres my attempt at understanding Eric's options strategy The premise of your strategy seems to be that Schmidt will do something in the next two weeks to raise the price almost two points from where it is today. Now if that were true why not buy a call for $10 and reap the $1 on the upside move which you expect anyway? The current premium is 5/8 roughly the same as selling the 12 1/2 call and you could get out at 11 5/8 or hold if the stock broke the range high quickly. Because if you sell the 12 1/2 covered call you lose any possibility that you were wrong on the upside. If the stock goes up that fast in two weeks, then it might go higher than 12 1/2 and you lose the stock and the upside $$$. Since your selling the covered call is premised upon the call never being exercised it seems to me that you are gambling on a fairly narrow move. This move would have to be shy of 12 1/2. Conclusion: You are betting the stock doesn't break its upside trading range high after betting the stock will make a substantial upside move. Did I understand what you are saying? Please confirm.

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