Herm:
My question is what to do with a stock that goes up, maybe
$3 or more, past your strike price?
The facts are as follows:
1. Buy stock at 14 13/16 on June 20, 1997. Basis = 14 13/16
2. Sell the July 15 call for 1 1/2 on June 20, 1997. Basis = 13 5/16
a. The stock is not called out since the price is 14 1/2 at
expiration.
3. Sell the Sep 15 call for 1 1/6 on Aug 1, 1997. Basis = 12 1/4
The stock is listed as a possible takeover candidate; therefore,
the price per share jumps to 18 1/2.
My choices at this point are (recall the stock is now at 18 1/2) :
1. Just let the stock get called at the Sept. expiration, assuming
the stock is still above the $15 strike price. Gain of 15 - 12 1/4
= 2 3/4 per contract.
2. Roll up to Sept 17 1/2.
a. Buy back the Sept 15 for $ 4 1/8. Basis = 16 3/8
b. Sell the Sept 17.5 for 2 3/8. Basis = 14
If i roll upto the Sept 17 1/2, I have a potential profit of
3 1/2 per contract. However, I have raised my cost basis
from 12 1/4 to 14.
Herm, this is a real ongoing situation in my portfolio. The price
quotes are real quotes.
My questions are:
1. Which do you recommend, letting the stock get called
or rolling up?
2. Can we apply the roll-up strategy to VVUS? My cost
basis is currently 26 5/8. If i sell the SEPT 27 1/2 calls on the
rally coming next week, let us bow our heads for a moment
of silent prayer, and the stock pushes past that strike, then
I can roll-up. What is your opinion of this? Maybe even sell
the Sept 25 call if i become really neutral on the stock. I
would still be below the $25 strike price, with the current
premium of about $2 per share my new cost basis would be
24 5/8 for the Sept 25 call. Then, when the stock moves back
up to the 27 1/2 range roll-up, or let the stock get called away.
I appreciate your, or anyone's, advise.
Respectfully,
John B. |
