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John:
Gary is absolutely right.
I know John was not talking about doing covered calls on TTWO, but here is a thought. Without giving up on the idea of playing the options on that stock completely, here is a slight improvement on the 7% return scenario, using the Naked Put theme John initially asked about --
So instead of buying the stock and selling a covered call, sell a naked Mar 17.50 put, currently at $1.35 bid. Your broker will mostly likely ask for a margin of $17.50 just in case you are put the stock. So the return is slightly better than the 7% from doing covered calls. ($1.35 divided by $17.50 =) 7.71%, or better if less margin than the $17.50 is required, or if there is other equity in the account to be used for margin...
And if you are not put the stock, only one commission is paid.
7.71% (or more) return on investment, for 5 months, = 18.50% (or more) annualized. Beats many mutual funds these days. Now don't everybody rush out and do this-- the open interest on this is still low. (:o)
Just a thought.
Bill W
In a message dated 10/21/2002 7:10:53 PM Pacific Daylight Time, gary@xxxxxxxxxxxx writes:
Thanks John. Interesting site,
http://www.optionsnewsletter.com
but just looking at one random recommendation:
Covered Call: 1
Name of the Company: Take-two Interactive S
Stock Symbol is TTWO
Last Price of stock: $27.63
Call being sold is: March 17.5
Symbol for the call is: UOCW
Bid Price of the call: $11.30
IN PLAIN ENGLISH If you buy 100 shares of Take-two Interactive S at the price of
Then sell 1 contract of the March 17.5 call for
Your "New" cost on Take-two Interactive S would be
$27.63
- $11.30
$16.33
( $2,763.00 )
( $1,130.00 )
( $1,633.00 )
On the third Friday in March if the stock is above 17.5 , Then it will get taken ("Called") away from you at $17.50. In turn you would make 7% on your investment.
Above, that $17.50 option is a full $10 in the money. Consulting the options quote:
http://quote.cboe.com/QuoteTable.asp?TICKER=ttwo&ALL=2
There's zero open interest in that particular option, and even though the bid shown is $11.30, I wonder how realistic that quote will be if you actually try and execute the trade?
When I look at this trade, can't help wondering if there isn't a better way to earn 7% on my money? I also think that any service that makes recommendations should filter out very thinly traded options, say, restricting their choices to strikes that trade an average of 100 contracts/day.
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