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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: robbie who wrote (15834)	1/31/1998 11:11:00 PM
From: Mike Gordon	Read Replies (1) \| Respond to of 97611

If the stock goes up $4 between now and options 'x' day (From 30.3175 to 34.5) what have you lost. Assume purchase 1000 shares at$30. $1,000 Credit from Covered Call $4,500 Debit Move from $30 to $34.50 Gain on transaction $1000 Loss on option $3500. Looks like a bad deal. However, you guaranteed yourself $1K. You can't guarantee the move of $4.00. So the question is, what are the chances of CPQ moving $4 in three weeks? If you think it's that good, sell the $32.5s or the $35s. It comes down to an assessment of what the market will do (CPQ) in the next three weeks. If it moves up a $1 or $2, I'd rather take my $1K profits now. Additionally, look at the premium on the March $30s and the $32.5. Bottom line is this, if someone is willing to buy my covered call for $1000 for a $30K investment for 3 weeks, I'll take it. Look at the potential for $100K. 3% for 3 weeks is not bad if the chance of the stock moving $4 in that same time frame is slim. However, every once in a while it will burn you. Concerning sale of puts after the exercise, the return is about the same. I do this monthly on 4 primary issues including LU, INTC, CPQ and ALD. ALD is not in the same league as the techs therefore the premiums are reduced. Mike Gordon