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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: ChanceIs who wrote (86175)	6/12/2007 1:39:28 PM
From: profile_14	Read Replies (2) \| Respond to of 206325

Here is a thought to consider wrt CNQ. Let's assume you own 10,000 shares of CNQ for the sake of this example. At $65.90/sh, the current price, you have $659k locked up with a paltry 0.50% yield. If you believe your CNQ will go over $100 in the next few years, then you might consider the following strategy. 1. Sell the CNQ position you currently have. 2. Buy deep-in-the-money January 2009 calls strike 40, symbol OKRAH, for 29.80, effectively making your basis at 69.80. The same 100 contracts that control the 10,000 shares in this example would cost you $298k. 3. You can take the balance of the cash or $361k (10k sh * $65.90/sh less $298k) and invest it in a very safe, higher yielding instrument, say a 10-yr bond at 5.2%. In essence, you are paying $3.90 for one and one-half year's worth of time, or under 4% if you annualize it (3.9/65.9/1.5 in a back of the envelope fashion) and if you are correct, you make out handsomely, and if not, your capital at risk is reduced by teh $361k. If you are really bullish and an ardent fan of CNQ, you can play catch up with CNQ by purchasing 221 of the same Jan 09 40 leaps of CNQ for the same amount of money you have tied up in the stock, essentially levering up 2.21 times your position with no additional capital and a delta option movement of one since you are very deep-in-the-money. Because you purchased leaps, you can still write short term calls against the position to generate trading income and hedge the stock movement as you have been doing. Just a thought that might actually help in a higher yielding scenario as we are today. Best regards,