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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe) -- Ignore unavailable to you. Want to Upgrade?

To: Madpinto who wrote (708)	2/17/1998 11:31:00 PM
From: Schiz	Respond to of 2241

A question about an options strategy. I was looking at msft options and was evaluating a possible strategy. 1. Short 100 shares of the stock at 154.375 2. Sell 1 apr98 155 put option for 7.125 3. Buy 1 apr98 160 call option for 5.75 This will cost 90.00 in commissions up front + 20.00 to eventually cover the short = 110.00 in total commission costs (I'm not counting selling the call because that won't happen if it expires worthless) You net 137.50 before commissions. Take the commissions away and you basically got a apr98 160 call for -27.50. If the stock tanks and the put gets exercised, you lose 62.50 from the short sale and the call expires worthless. You end up losing less than 50.00 So according to my calculations, you can get an apr98 160 call for .50 instead of the going rate of 5.75 and all it will take is some account equity to offset the short. I just used msft for example purposes only and have no intention on doing this with msft or any other stock before I feel I understand what's going on a little better(my broker probably wouldn't let me if I tried). Am I missing something here? Are the option quotes I'm getting accurate? Did I mess up the math?