Rick:
Good move! You don't have to lock that $ 45K to cover your naked 10 puts jan01/45. As a matter of fact you got paid 6 7/8/share. To be the most conservative, you only need $ 37,125 to cover (the remaining $ 6,875 is from the proceeds of that option).
The margin requirement is
20% of underlying stock (now at 58) = $ 11.60 minus out of the money ( $ 13) gives you a negative amount, hence use the minimum required: 10% of the underlying stock which is $ 5.80
plus current premium $ 5.50 = $ 11.30
Times 1000 shares = $ 11,300 which is required by the broker.
Go further: $ 11,300 minus $ 6,875 = $ 4,425 your own money. Now in 5 months that option is worthless (hopefully), you keep that $ 6,875. Let us calculate the return:
$ 6,875/$4,425 times 100% = 155% return for 5 months which is equal to annual return of 372%. Not bad.
Caveat: I have only presented the potential, but there is a substantial risk involved.
You need to do this on a dynamic stock like QCOM, and have the capacity to be assigned. Don't do it on a stock like RiteAid.
Paul
PS Why would you think that Mucho put you on ignore? |
