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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: slacker711 who wrote (129914)	6/25/2003 3:49:41 PM
From: Art Bechhoefer	Respond to of 152472

The proceeds from sale of put options would be similar to proceeds from the sale of treasury stock. It would be a one-time addition to earnings (if the sale was at a price higher than cost). If QCOM shares drop to a new low, as some people seem to be predicting, then the sale of puts would be recorded as a loss (if QCOM bought back the puts), or if the actual shares were put to QCOM, and the purchase price was greater than market price, QCOM would have to take a loss because the shares were acquired at a cost greater than their current market value. The likelihood of a collapse in stock prices over the next several months is low (because the current administration wants to get reelected). The strategy of selling puts should therefore have a low risk and should simply reduce the cost of purchasing shares in accord with the QCOM stated policy of buying up to $1 billion of its stock. Given that QUALCOMM is one of the few telecom companies with steadily improving earnings, it is likely the stock will get into the mid 40's in the next few months, making the sale of puts a very good investment. Note that sale of puts with an expiration date two or more months in advance means that one can collect on the premium that is usually attached to the puts. Thus, if the stock is at 35 and one sells a September or October put with a striking price of 40, the price will be somewhere near $5.50 to $6.00, representing a premium of ten to 20 percent. If the stock reaches 40 by expiration date, the puts are worthless, so the seller gains the value of the in-the-money put plus the premium. However, what more often happens is that the stock may move from, say, 35 to 38 on good news or on a large investment firm recommendation (rare but becoming more frequent). As the put approaches expiration, the premium disappears. As the stock appreciates, the intrinsic value of the put disappears. If you sold one of those puts and got $5.50 and then bought it back for, say $3.00, in a month or so, now that would be a fairly nice percentage gain, wouldn't it? Art