Cisco Systems, Inc. (CSCO) Message Board

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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 71.08

+0.1%

Nov 7 9:30 AM EST

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To: Jerome who wrote (64349)	8/6/2003 1:43:59 AM
From: Uncle Frank	Read Replies (2) of 77397

>> CSCO is good covered call at today's prices. Buy CSCO at 18.83 and write the Sept 20"s for .50 to .60. This about a 9% appreciation (minus the transaction premium) A buy/write covered call is best entertained during a period when you have bullish expectations for the underlying stock. I'm not sure I share your optimism for csco over the period you've specified. Should the stock not reach the strike price, you keep the all of the premium, but may be left holding csco at a significantly lower market price. As example, you suggest buying csco at 18.83 and writing the sept20s (cyqid) for .50 to .60. If you had done so at the end of trading today, tomorrow morning you might find yourself holding a stock trading at 17.92, which is where csco closed in the aftermarket, and short calls trading at .15 (a guess). So if you bought back the calls and sold the stock, you end up with a net loss of (17.92 - 18.83 + .50 - .15) = -.56, or -3%. And if csco fell further between now and September 20, expiry for September calls, you could be in a pretty deep hole. uf

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