This is only if you believe that ARNA’s weight loss drug will be approved later this week (the market sure seems to believe it)…..
Anyway, rather than buying the $11+ stock and writing July $11 call options to take out $2 in time premium for 29 days, I looked at the deep in the money calls for July, and noticed I only had to pay about 40 cents of time premium. So I bought the $6 calls for $5 and change, and sold the $11 calls for $2 and change.
It’s all over the place today, but the net effect has been to pay 40 cents of time premium on the $6 calls and sell $2 in time premium on the $11 calls.
In dollars and cents, it takes my net cash outlay down to just under $4 a share, which compares favorably with laying out a net of $9 a share doing the buy-write. I get $1.60 of time premium if both options are in the money four weeks from now in the vertical spread play, where I would get $2 in time premium if I did the buy-write.
If the drug is sent back to the minors for yet another round of testing or even rejected, both strategies will stink, because the stock will become a penny stock overnight.