Compaq Message Board - Msg: 5106585

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Technology Stocks : Compaq

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To: Mike Fredericks who wrote (28527)	7/6/1998 12:39:00 PM
From: Dr. Id	Read Replies (2) of 97611

Jan '99 CPQ 25 Call trading at 6 x 6 1/2 Jan '99 CPQ 30 Call trading at 3 1/2 x 3 7/8 If you assume that CPQ will be 30+ in Jan '99 (which I believe is a very safe bet) then why not go long the 25 Calls and short the 30 calls for a spread? You have to put up $300 per contract (6 1/2 - 3 1/2) and in Jan '99 get $500 per contract for a 66% gain less commissions. All this if CPQ just nudges up 1 point in the next 6 months? What am I doing wrong? I you are confident that it will be trading higher, why not just buy the call, rather than limit your upside by creating the spread? The danger is if the stock doesn't move, or moves lower, you lose your whole premium. I think it will probably trade higher five months from now, but I've also found that time goes alot faster when holding options...

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