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Biotech / Medical : Sepracor-Looks very promising
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To: Bob Swift who wrote (844)5/6/1998 12:32:00 PM
From: John Metcalf  Read Replies (1) of 10280
 
The buy-write strategy makes sense, but is not a sure winner. If the stock goes up, and the $50 strike is called, you replace the shares with the $35 calls. If the stock goes down, you keep the premium on the $50's, but lose value on the $35's. If the stock is below $40 at expiration, you lose more on the $35's than you made on the $50's. There are lots of ways to re-balance the equation, including differential time-frames, and differential numbers of contracts at each strike.

To evaluate the whole trade, there would have to be allowances for decaying premium, commissions, and the time value of money.

Not a bad strategy, but the risk-reward is not sufficiently attractive to me.
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