V.13:5 (204-208): Using a Covered-Call Options Strategy by Lawrence Serven

V.13:5 (204-208): Using a Covered-Call Options Strategy by Lawrence Serven
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Using a Covered-Call Options Strategy by Lawrence Serven

What can investors do to overcome adverse market conditions? You could try using a covered call strategy. This strategic planner and analyst recounts a series of trades he executed using a covered-call options strategy in a high-technology stock.

At the start of 1994, Intel Corp. (INTC) was an analyst's dream. The microchip maker was the undisputed leader in a high-growth industry. The company had an astonishing record of increasing revenue and improving earnings on a quarter to quarter, year to year basis. The company produced these results not by chance, but by following a coherent strategy. Intel invested staggering sums into research and development to produce technological advancements that competitors found hard to match in any timely way. By the time a competitor could match the technology, Intel would be ready to lower prices, ensuring their own profitability while squeezing the margins of their competitors.

Reinvesting profit back into R&D enabled Intel to begin the cycle over again, thus ensuring their dominance in the industry. If this were not enough to persuade investors, INTC stock at the beginning of 1994 carried a price/earnings level of 13, which was very reasonable given that earnings growth was projected to be 18%. This was enough for me. On March 3, 1994, I took the plunge into INTC, purchasing 1,000 shares at $70.50 per share.

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