I assume you have spent as much time as myself today trying to decide on which Dell calls to purchase this week. I have used a similar strategy as yours, buying out of money calls for around a buck and found them hugely successful...(when I'm right of course!).
In the current scenario, Nov 110 looks very interesting....a dollar. Also, a little higher is Dec. 110 at 2 3/4. Nov 115 at 5/8 looks tempting, but time is short. I'm thinking of spreading it around, with Nov. 110 taking precedent. Thanks in advance for your thoughts.
Graham T. Flinn
The problem with Dell calls is that they are expensive--too expensive to make much of a profit on. I don't expect Dell to climb much above 110 because it has already climbed so high. I think a much better buy right now is the Compaq 80 calls, which can probably be gotten for a limit price of 3/4, and Compaq has a much better chance of greatly surpassing 80 than Dell has of surpassing 110 by a large margin. Dell has already climbed so much over the past year, that I don't think it has much of a chance of passing 110 by more than a few points before earnings, which are reported after November expiration, so you won't be able to take advantage of an upside earnings surprise, if there is one. And if earnings are disappointing by even a little bit, it may well drop. I think Dell will do well, but it's not going to continue doing as well as it has. I think 110, 111, or 112 is as high as its going to get before earnings, and thus, you won't make anything off of Nov 110 calls that you are paying a $1 for, unless the stock price runs up quickly, and you decide to sell long before expiration to take advantage of stock price and remaining time premium, a very risky bet.
I also believe that there are much better deals than even Compaq, but I need to do more research yet. Compaq calls use to be cheap, but now they're getting almost as expensive as Dell. (Although I do believe the Compaq 80 calls will pay off well.) |
