Stan, your computations seem okay but not the price of the Calls. According to this site, the In the Money Call Jan '04 10 closing price/share Friday were at $6.60 Bid and $7.30 Ask: —-
host.wallstreetcity.com
Could it be that what you meant was the Out the Money Call Jan '04 15 which closed at $4.00 Bid and $4.50 Ask? Your $4.00/sh buy price seems to belong here.
Let's assume that when AMAT closed @ $14.32 Friday, you bought 50 Calls Jan '04 15 @ 4/sh. Your cost = $20,000 (50 X 100 X 4.00). Assuming further that a few weeks from today AMAT reaches $20/sh and said Option reaches the price of $6.50/sh (20 – 15 = 5 + Time Premium left) —- then you decide to sell pocketing $32,000. Your gain therefore would be $12,000 (32,000 – 20,000) or 60%.
For comparison, if you bought 1,396 shares of the stock spending about $20,000 instead, then your gain would be $7,920 (27,920 – 20,000) or 40%.
Now, if you bought 50 Calls '04 Jan 10 @ $7.30/sh Ask at the cost of $36,500 (50 X 100 X 7.30) —- then you would gain $13,500 (50,000 sale price – 36,500 cost basis) or 37%. Could be more when the Time Premium left is considered.
I hope my computations are right.
As you can see, the Call Options don't have much advantage over the stocks when we are calculating a price advance of just 6 dollars or so. There's a lot of difference when we talk about AMAT returning to 25 or more. You could play with the values (what if) in a Spreadsheet.
Will AMAT ever go back to 25 again? Based on past actions as measured by FA, TA and even my YoYo-StairCase Analysis —- Yes. But things are not normal. Our Analyses, our Graphs are not working. Even the Doom and Gloomers before who changed their stance and became Bullish recently can't believe how things deteriorated. Well, that's what they've wished for and they got it so they have to suffer also with it. |
