Fri Oct 5, 2007: Google 600? Call Spreads 620-630 28% Income

With only two weeks left before October stock options expire on Friday October 19th, writing call spreads on Google stock (NASDAQ-GOOG, 594.05) offers a potential income of 28%.

Selling the October 620 call and buying the October 630 call at current prices provides a net credit of $220 on a margin requirement of ($1,000 - $220 = $780).

Dividing the income by the margin deposit: 220 / 780 = 28.2% ignoring commission costs. This is the profit assuming GOOG stock closes below 620 on October 19th so that both call options expire worthless.

If GOOG finishes above 622.20 on expiration day this bearish strategy will lose money. Owning the October 630 call will limit the maximum loss to $780 per spread.

Option writers who are bearish on RIMM and would be happy with that safety margin might find this trade attractive now.

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