Monday, December 04, 2006

Quick Update

Okay, I got a few minutes here before I head to lunch, so I figure I'll write this quick.

Earlier today, I entered into a buy-write trade with Broadcom (BRCM). Bought shares of BRCM at 33.47 and simultaneously sold BRCM Dec 32.50 call options (RCQLZ) for 1.55.

What's this mean? Well, it means that I effectively paid $31.92 for shares of BRCM that have a maximum profit potential when called away for 32.50. Basically, the options expire next Friday. If BRCM closes at 32.50 or higher, then I've realized the maximum gain of 0.58 (or 1.82%). If it closes from 31.92 to 32.50, then I gain from 0 to 0.58. Anything below 31.92 and I lose penny for penny.

So, I figured I'd take my chances here to capture 1.8% for less than two weeks time. This works out to more than 60% annualized.

No comments: