Mike. Regarding ARC <I even recommend doing a
buy and write on it with the Jan 2001 65 or 70 calls.> Let's say ARC gets bought out at 90 bucks in 1999. What happens to those calls. Do they expire worthless, or are they called at the time of the acquisition?
What is the strategy of buying shares and (specifically) writing calls for ARC? If arc goes to 100 by expiration haven't you limited the upside to the strike price plus the premium from writing the calls?
Is the strategy to:
a)buy the calls back if and when the stock dips?
b)have them expire worthless in the event of a buyout and keep the premium?
c)take the premium from the writing and invest it over the duration until expiration for a compounded return?
d)produce low risk tax sheltered income. Factoring in the income from the (let's say at the money) leaps, and the 4.3% dividend, gives a safe return that beats cash handily, while the more likely risk is one of opportunity cost (ie the stock will blow past the strike price by expiration.) as opposed to risk of loss of capital (unless oil goes to 8 bucks in 2001).
Assuming that arc does not get bought out, what total rate of return per year are you looking for (not including capital appreciation), when you total the dividend, the premium from the calls, and the compounding effect of reinvesting the dividend and the premium?
Happy Thanksgiving
miklosh
P.S.
Btw, since the rules for my Canadian RRSP would favor this strategy for a Canadian co, do any come to mind? I'm thinking Trans Canada Pipeline (http://quote.yahoo.com/q?s=TRP.TO&d=2y) 5% yield, and the stock's been beaten senseless<g>. |
