Chapter 03 - Increase Your Profits on Winning Stocks By Getting a Premium to Market Price Flashcards
1
Q
Selling covered call options on a winning stock can earn you a premium to the market price when taking profits.
A
Example: Scientific Atlanta (SFA)
On 4/4/2001, investor bought 2,000 shares of SFA @ $37/sh or $74,000. Stock was bouncing up from $35 support. In Jan 2001, stock was $60 right after earnings. Q1 earnings due 4/1901, one day before expiration. Investor planned on selling shares right after earnings at $60+ for a total profit of ($60-37) x 2,2000 = $46,000.
Plan is to enhance profit by selling covered calls as the stock approaches $60. Our target is to sell April SFA $60 calls as soon as stock reaches $59 1/2. On Apr 17, 2001
