Options Message Board - Msg: 13235446

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Strategies & Market Trends : Options

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To: KY who wrote (5247)	3/19/2000 10:33:00 AM
From: Seldom_Blue	Read Replies (2) of 8096

My two cents on your QCOM choices. If you are bullish long term but think it is dead money short term, you can do a spread. Here is how one might approach this: - Buy Jan01 120 at $43 (I am dropping all the fractions to make it easier to read). I like to buy slightly in the money calls to reduce the amount you pay for time value. Stock is at 139, so you are really paying $24 dollars for time value. - Sell July 160 at $15. Your cost of the whole transaction is $43-$15=$28. If the stock goes up quickly to get to $160 or above, you are locked into profits of (160-120)-28=12. That is 42.8% return in four months. You can sell earlier if the stock goes above it quickly, thus more annualized return. If the stock does not exceed 160 in July, as you would expect, you pocket the premium and your cost for your long LEAP is only $28. You can sell a higher strike call to further reduce your basis, sell your Jan01 to lock in profits, or just let it ride to January for the expected fall run. Your downside is losing $28 if QCOM goes below $120 in Jan. 2001. Your upside depends on when QCOM makes its move. Seldom Blue

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