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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Jerome who wrote (64359)8/6/2003 10:10:34 AM
From: Elroy  Read Replies (1) | Respond to of 77397
 
If the common was held through that same period of time it would also be at a loss. But with the covered call premium the loss is less.

Sure, but the tradeoff is you limit your upside. In your scenario if at expiration in September CSCO stock is trading at $24, you haven't made $5.10 per share ($24-$18.90), you've only made $1.70 per share (($20-$18.90) + 60 cents).

What you want is a guaranteed profit

Not sure why you're saying that about me, but I'll certainly agree, it would be nice! I also would like a chocolate milkshake, a 3 week trip to Koh Samui, Thailand and couple of classic Orson Welles DVDs, but that has nothing to do with helping you understand options.

Elroy



To: Jerome who wrote (64359)8/6/2003 10:10:44 AM
From: BWAC  Read Replies (1) | Respond to of 77397
 
So if you put up $18,000 to buy 1000 CSCO and managed to sell Covered Calls 4 times a year at 60 cents each time, at one strike price above your purchase point. That would be $2,400 in premiums on your initial $18,000 risk. Or 13% potential return. Not bad. As long as CSCO can be sold for at least 18 sometime in the future.


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