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Technology Stocks : Dell Technologies Inc.

DELL 122.55

+4.4%

Nov 21 9:30 AM EST

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To: edamo who wrote (96435)	2/9/1999 6:27:00 PM
From: Chuzzlewit	Read Replies (1) of 176387

Actually, your profit is considerably higher if you get called. Because you get cash upon writing the call your initial cash out is $60. Assuming you get called you receive a profit of $40 in two years. That works out to 29% per annum. I worked out this kind of analysis in detail, and the risk is that the stock will be driven much lower than $60, abut you are locked in because of the covered call strategy. The value of the stock will fall faster than the value of the call (delta <1), so if you need to exit you may find yourself losing money. Because of the long time period the loss in value due to time is relatively small up until about three months or so before expiry. You can frequently do much better with short expirations, where with Dell you can write slightly in or out of the money or at the money calls with a hefty premium. For example, you could write a Feb 97 call for around 7 1/2. If the stock is trading at 97 1/2 you get $5 of time value for a week and a half hold. If you get called you have an annualized return of 492%! If you don't get called you bought the stock for $90 (excluding commissions). TTFN, CTC

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