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Technology Stocks : Novell (NOVL) dirt cheap, good buy?
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To: Scott C. Lemon who wrote (29749)1/3/2000 11:38:00 PM
From: Paul Fiondella  Read Replies (1) of 42771
 
Using your example

Let's use todays price of 38.

If you sold Feb 35 Calls today you would have received 6 1/8. If the stock is above the 35 strike price at the close on the third Friday of February then you deliver the stock on the following Monday and receive $35 for a total of 41 1/8th. That gives you 3 1/8th more than if you sold today.

If the stock goes down below 35 then of course it will never be called away from you. On the other hand if it goes down too far say to 25 in your example, your original purchase price for the stock is now 6 1/8 lower. So if you bought at 20, the real cost of the stock in now 13 7/8th. You can sell at 25 and still make a profit but of course not as great a one you would have gotten by just selling the stock at 38.

There is no way to protect against a slide. However if a slide happens as it did last Fall I found this lowering of the cost basis of the stock to assist me in not being forced out of my position.

The strategy I pursued was to buy back my call at far less then I sold it for.

Admittedly last year had you sold NOVL outright at the beginning of March (approximately), you could have bought it back for half as much in December and used the money in the interim. No one however does that. They take the money into something else.

My own feelings about NOVL are that last year the break out to 31 was in anticipation of the internet becoming a part of Novell's business. This year the break out is because Novell is an anointed internet company. E-directory and the caching appliance confirmed that.

SO I am more positive about Novell making internet stock gains and having a higher valuation. Even at 40 a share NOVL is trading at only 40 times 2001 earnings.
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