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Technology Stocks : Novellus
NVLS 2.400+2.1%Jul 24 5:00 PM EST
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To: Gottfried who wrote (3637)4/23/2006 2:19:26 PM
From: BWAC  Read Replies (1) of 3813
 
Let me weigh in on the covered calls using KLAC as an example.

Buy 1000 KLAC @ 49. Cost $49,000
Sell 10 Covered Calls May 50 @ $1.30
Net Cost $47,700
Potential Gain 50 - 49 + 1.30 = $2.30 or $2300 if closes over $50
Potential Loss 1.30 - $4 estimated max price drop to the $45 level if eps is bad = $2.70 or $47.70 if you prefer KLAC to zero as max.

Or:

Buy 20 May 47.50 Calls @ 2.60 Cost $5,200
Sell 20 May 50 Calls @ 1.30
Net Cost/Risk $2600
Potential Gain $2400 if closes over $50
And you have the 'saved' $45,000 cash to use if things go really bad. No to even mention that you can salvage something out of the option spread as well since the 47.50's will retain some value thru expiration.

Stagnant movement though favors the Covered Call which will work better if KLAC stayed $48 to 49.
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