Thur Apr 5, 2007: Two-Week GOOG Call Spreads 29% Income

With only two weeks left before April stock options expire on Friday April 20th, writing call spreads on Google stock offers a potential income of 29%.

Selling the April 490 call and buying the April 500 call at current prices provides a net credit of $225 on a margin requirement of ($1,000 - $225 = $775).

Dividing the income by the margin deposit: 225 / 775 = 29% ignoring commission costs. This is the profit assuming GOOG stock closes below 490 on April 20th so that both call options expire worthless.

If GOOG finishes above 392.25 on expiration day this bearish strategy will lose money. Owning the April 500 call will limit the maximum loss to $775 per spread.

Until next time, best of luck with your option investments!