A semi related question, do you think it's a good time to get rid of Qualcomm? It's been inching up from 43 for the past couple of days.
Here's what we do (not suggesting anyone else does this). Nor am I convinced if it really makes sense to do. But I thought I'd share.
There's a chunk of QC stock that we bought really early that we never have an intention of selling in the near term for various reasons…
But, while it's sitting there, I just write some covered calls when the QC stock prices is around $42-43, and buy them back when the stock trickles back down to hi-30ies or just let them expire if it's really close to the option expiration date.
I typically write $40/share covered calls that expire in 1-2 months when when the price of QC is $41-43. For example, $40 call options for jun 08 (aaofh) currently cost around $4.5, which is about $1 premium of the current market price of the stock ($43.50). QC stock in my observation over recent times have bounced around mid thirties to low forties, and there is considerable resistance around $43. Barring any drastic news (positive or negative), it will probably continue to bounce around. So $40 covered calls, gambling on QC stock will fall back down to the $40ies or high thirties by the time the option expires. Usually, this renders the options useless or at least underwater, which allows you to keep the all or part of $4.5/share that was received for writing the option and allowing to keep your stock. The stock then usually bounces back up to the low forties again, where we write another covered call that expires 1-2month out. It's sort of a hassle, but it allows us to pocket a few thousand most of the time.
Where you can get in trouble is if the stock price actually goes to say $45-$50. Then in theory, someone can exercise your option, and your broker sells your shares automatically at $40/share. Since you were paid for the option contract ($4.5), you end up effectively selling your shares at $44.5, below market value, which sort of sucks. BUT, if you were considering to sell the stock at $42/$43share with a limit order, the effects are sort of the same. In practice, you're options aren't always assigned immediately. So while the stock price might rise to $45 one day, if it goes back down to say $42 the next few days, chances are your options won't be assigned (because usually there is so many outstanding options, it doesn't get assigned to you). The exception is if the stock happens to rise 1-2 days right before the option expires (in which case, most in the money options will be exercised by the option holder). In the unpredictable event of some drastic news that pushes QC to $50/share, you have the choice of letting your shares go OR closing your covered call position and re-staggering a new covered call at a higher strike price when the stock price is at $50/share (say write new covered calls at $45/share while closing your original $40/share covered calls).
And yes, this is gambling, sort of, so you won't always come out ahead all the time. But considering statistically options expire worthless, over a longer period of time, you have some decent odds.
