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Technology Stocks : JDS Uniphase (JDSU)
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To: im a survivor who wrote (18223)2/11/2001 1:54:35 PM
From: Stocker  Read Replies (3) of 24042
 
KG4,

Here's another covered options play. If you like the long-term prospects of a company and would be content to buy more stock in the future assuming the co. won't develop any major problems.........buy 100 shares of the stock and sell an at the money call and an at the money put. Generally it pays best to only go out 6 months to 1 year with this strategy. The premiums received on the written call and put should greatly reduce the cost of the stock, sometimes by 2/3rds.

Best case scenario, if the stock moves higher, the put expires worthless (no cost to you) and the call obligates you to sell your stock at the strike which, given your much reduced cost base, provides a nice profit.

Worst case, if the stock moves lower, you're obligated by the put contract to buy another 100 shares at the strike, leaving you with 200 shares with a cost representing the average of the two buys (100 shares a today's price less the premiums on for selling options plus 100 shares at the strike). The call expires worthless and you've got a longer term position established at a lower average cost.

Again this should only be considered if you would be content to buy more shares of the company in the future based on the firm's positive long-term prospects. I haven't looked at this yet for JDSU or SUNW but it looks very attractive for some other co's I've looked at lately. Take a look at it for SUNW and I bet the numbers look ok.

Happy trading.
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