One option play I made today was to sell covered calls on shares I own for Jan 2013 $100 strike price call options for $5/share and used the proceeds to buy Mar 2012 $120 calls for $.80. This play is used only if you plan to hold on to your shares until "the event" occurs (the event being whether or not IDCC gets bought). The rational here is that if a buyout (or other positive PPS event) it will happen by Mar 2012 or it won't happen at all and we'll drop back to the 50's. This juices my potential returns tremendously if IDCC goes north of $120 without any additional cash outlay.
The risk is if a buyout occurs between $100-120 then I would "lose" (in opportunity cost) $0-20/share on the trade.
The other risk is that the pps of IDCC before Mar 2012 expiry is below $120, but is above $100 on (or near) the Jan 2013 expiry. In this case my shares would be called away and I would "lose" (again in opportunity cost) $1/share for each point in PPS above $100.
This case is a simple one of holding the options until expiration. As Postyle mentioned you can always close out your position for a given price at almost any time.
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