It's not that simple (the MRVL trade).
The idea is to sleep at night knowing you're getting 5% a month. The idea on the MO trade is NOT to expect the decay in the short option like you normally do! The idea is to use the short call as protection on the long call. The stock isn't going anywhere like a MRVL did from $36 to $11. So, you know you're safe in terms of overall downside risk.
The idea is to get into a situation here where you win if the stock goes up or down. If it goes down, you cover the short call for a profit of 5% or more, then ride the long call back up when it cycles back up. Then either re-sell a call and do it over again.
Or, if it goes up, the delta effect enables you to profit that 5% or more on the combination of the two. The delta is the amount the call will increase in dollar terms compared to the stock itself. The stock has a delta of 1, meaning it moves dollar for dollar. (duh). The LEAPS call you buy long will always have a delta of at least 2 times that of the short call. So, if the stock moves up, the long call LEAPS will increase faster than the short call. This way, although the short call will lose you money, the long call makes up for it plus.
These are managed trades.
Now, what I do see as a perfect setup is another rolling collar on MRVL. I think that whole sector is busting out and MRVL just needs a move over $12 to confirm itself. Now's the time to buy the stock, buy the Jan 2009 $15 puts limiting yout total risk to under 4%, and then ride up the stock as it breaks up and then sell $15 calls on it or even $17.50s negating the entire risk because those calls will pay for the put.
I'm going to do it tomorrow.
AI
