Glenn,
What do you think of this:
Assume x,000 shares of ASND at almost 38 today.
The Jan '99 45 calls are at 9.62.
If one were to write Jan '99 45 strike covered calls on the full x,000 shares, and ASND were to close at or above 45 in Jan '99, then there would be something like a 45% gain over the next 16 months (Oct '97 - Jan '99)
That isn't bad. It requires one to foresake enormous upside potential (say, ASND closes at 100 in Jan '99). However, what is the likelihood I would actually stay in ASND as it rose above 55 anyway?
Perhaps I could do this with x,000 shares, and leave an equal amount, another x,000 shares, open for unlimited growth.
Also, what about entering into this transaction before earnings are released. It does kind of protect against a bad downside and further, if earnings are bad, one could always buy back the calls (at a gain, for they will decline in value) and then sell them again after the stock recovered from the earnings data (should the data be bad). If earnings are fine, well, then, I've already committed myself to the predetermined gain. Is this crazy or what???
Aha, but Glenn would say (I think) that this is a synthetic put. If I were to write a Jan '99 45 put now I would get 13.62 times my stake. That is less gain than on the synthetic put, but it ties up no money in the underlying stock itself. Hmmm...This looks good, doesn't it?
Then again, there is the Jan '99 60 put at 24.62. Heck, if the stock closed at 36 by then it would be a break even. Hmmm...
I'd appreciate any thoughts on this!
Gary Korn |
