New Purchase: Cisco Systems (CSCO)

Written by MrStockFox. Posted in Trade Ideas

Yesterday I purchased 100 shares of CSCO at $27.58 and sold 1 June 17th $28 Call option against it.

This trade can work out in several ways.

1. If the price of CSCO closes above 28 on June 17th, the 100 shares will be called away at $28.  My net gain will be $73 (the amount of premium after my expenses) plus the difference between $28 - $27.58 = .42 x 100 shares.  The total gain will be $115.  My total return will be Approx 4.2% return in just over 2 months time.  Annualized it would be around 25%.  Not a bad return!

2.  If the price of CSCO closes below 28 on June 17th, I would keep the $73 premium and keep the 100 shares, and then go on to collect the 3.75% dividend ($104).  I could then write more calls against this position at a later date.