Steve, to add to Tito's strategy....here's my 2c worth..
Listed below are the JAN 99 call options
Strike bid ask
20 16 3/8 17 5/8
25 13 1/2 14 1/4
30 11 11 3/4
35 9 1/8 9 7/8
40 7 1/2 8 1/8
45 6 1/4 7
50 5 1/8 5 7/8
Now depending on you outlook there are numerous scenarios....The
following may not be the best combinations...you'll have to do the
math to find the best return. Also, I did not include commissions.
And I am assuming you will hold till expiration. You don't have to,
but the following assumes you do...that way I don't have to figure
out the premiums.
Lets say you are an "Extreme Bull"...you think this stock is going to
be much higher than current price by 1999. Then you go for the major
home run...(remember you can workout alot of combinations, this is
just one)
Buy the $35 call ($9 7/8) and sell the $40 level put ($10 7/8)... In
this situation you end up pocketing $1 right off the bat. So you've
put in no money out of pocket and by Jan 1999 if the stock is above
$40 you make money. For example at $70, you pocket $35 +1 with a zero
investment. Downside is, if the stock is below $35 you start losing
money...at $20 you lose $15, etc. So lets say you did it with 50
calls and puts...at $70 you pocket $180,000...if it goes to $20...you
lose $75,000.
If you are bullish and just want a home run...buy the 30 call (11 3/4)
or any higher level call...this will leverage you money. So if the
stock hit $70 by 1999....you pocket $28 1/4 , a 240% return while
risking $11 3/4. You could buy the $20 level calls ($17 5/8), but you
get less leverage (more out of pocket) at $70 your return would be
$32 3/8 (184% return)...but now you are risking $17 5/8. If you were
to buy a $35 level call...your out of pockek would be less and %
return would be greater...etc
If you want to minimize you loss yet still make a good return,
consider this one....Buy the $40 call ($8 1/8) and sell the $50 level
call ($5 1/8)....in this scenario....you are risking $3 out of pocket,
with a maximum return of $7 (233% return) and the stock only has to
go to $50 by Jan 1999. The higher stirkes you move to, ie. buy 45 and
sell 55..your risk reduces and your return increases. So you minimize
your loss but you also limit you profit, unlike the previous homerun
scenarios where the upside is unlimited.
So based on where you think the stock is going to be and how much you
want to risk...there are lots of strategies that can make alot of
money. I hope I didn't make any mistakes....do your own math before
you try any of the scenario's above.
Good luck
dave |
