Compaq Message Board - Msg: 3956549

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Technology Stocks : Compaq

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To: Mike Gordon who wrote (23881)	4/4/1998 9:53:00 AM
From: Andreas	Read Replies (3) of 97611

Right on! I believe a lot of investors forget that a bird in the hand is worth two in the bush. And don't forget when one does the ROR on a covered call scenario the result is often in excess of 40% annually. At that rate Warren Buffet looks like a piker. In fact, I can give a perfect example where I blew it, as others would say. I bought Coke at 72 and wrote the covered call at $75..00. Stock has gone to $80.00 in just three weeks. Clearly I would have been better off just owning the stock. However. When I did the math I concluded, regardless of what Coke may or may not do, I cannot argue with a return of $4.00 per share in thirty days on $72.00. That's a 5.5% gain in one month!! Annualized that is about 60% net of commissions. I went for the bird in the hand. But remember this - one is not likely to repeat a situation where you buy the stock, sell the call and then the stock goes up in excess of 10% in three weeks. So yes, cpq could do this, it could do that by May. Who knows? Buying cpq at $26 and selling the May call for $1.00 with a strike price of $27.50 gives one a $2.50 return in about six weeks. I'll take the 6% in thirty days anytime.

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