Stock Option Strategy Question?
I’m new to stock option and considering the following strategy and would like to know if I’m missing any flaws to it:
A stock ABC is selling for $42 with an average 10yr growth of above 10%. Stock call for $44 expiring in one year are selling for $3 (bid price) and the bank stock pay a dividend yield of ~5%.
If I buy 100 shares of that stock and sell the options from a year from now, assuming the stock reaches 52$ or above, will I really make 5% divident + $3 from options + $2 from the price increasing? Thus an %5 + 5/42 = ~11% return from betting on the share price increasing only 2$(+5%) in one year?
I understand that any profit above $44 will be lost when closing the option position and that I may potentially loose money if the stock was to drop below the $42 original price - $3 option price ($39) but is this my only risk of loosing money or am I missing something fundamental?
To me this seam like a position that is a lot safer then simply buying shares.
Question posted courtesy of: Florence
