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Technology Stocks : Network Associates (NET)
NET 200.21+1.6%Nov 28 9:30 AM EST
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To: Just_Observing who wrote (5222)5/4/1999 10:23:00 AM
From: AlienTech  Read Replies (2) of 6021
 
Strategy to make 114% from 25% rise
by: bargain_hunter_ 11587 of 11594

I bought 8000 NETA shares at $13 yesterday, then sold 80 options ZNEAC (Jan 2001 $15 call) at $6 giving me a cost per position of $7. Would recommend potential longs consider this strategy...

If the stock rises to $15 or above by Jan 2001 the owner of the calls I have sold take my stock from me for $15 and I realise an $8 profit (116%) per position, if the stock price falls but still stays above $7 the option expires worthless and I make a more modest profit. If the stock falls below $7 I make a loss, but a much lower loss than if I had simply bought the stock.

Analysis:-
NETA Val 21/1/2001 Profit on Shares Profit on "Postions"
0 -100% -100%
3 -57% -80%
5 -29% -67%
7 0% -53%
10 43% -33%
13 86% -13%
15 114% 0%
32 114% 113%

I would make more money by simply buying the shares only if the stock gets above $32. With this strategy you give up the opportunity to profit from a huge surge in the stock price but you do get a much lower risk, very profitable position.

Furthermore, the $6 cash you get per position for selling the option provides $12 of margin so the only cash you need is 50 cents to provide the extra $1 of margin per position. This helps me hold the postion for this length of time without tying up all my trading capital. If you measured this investment as a return on your capital from the 50cents plus margin costs you get a >1000% roi :)
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