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Technology Stocks : Dell Technologies Inc.
DELL 133.180.0%12:59 PM EST
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To: jhg_in_kc who wrote (92225)1/28/1999 3:35:00 PM
From: Chuzzlewit  Read Replies (2) of 176387
 
jhg, it sets up a limited insurance policy against a market downturn. While it limits your upside, it also makes your position less volatile. For example let's say that you could sell Feb AOL 175 calls for $15 (sheer guess -- I don't know what they are currently selling for). With the current price of the stock at 173 that means that you have effectively bought the stock at $158 (because you receive the cash now $173-15=$158). Your profit is limited to $17, or 17/158 = 10.8% in three weeks. Annualized that's a gain of 488% potential upside. You lose out only if the price of the stock falls below $158 on expiry of the option (Feb 19). That's the theory anyway.

In practice I've been able to increase my portfolio's performance by about 2.5% per month doing this. But you do have to be prepared to have stock called away from you. I've never had DELL assigned, but I did have TLAB assigned a couple of months ago which limited my participation in its tremendous upward move. I lost out on $7 per share of potential gain as a result. But I also gained around $4 along the way, so net, it cost me around $3 in foregone profit.

Now why would I continue to do this with AOL? Because the premiums AOL options command are huge, and the lure is too big for me to resist. So I will play the greater fool game to a very limited extent.

TTFN,
CTC
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