Tom Armistead's  Instablog

These are my trades on the options strategy mentioned in my article on Raytheon (RTN).  There are four possible outcomes shown: maximum profit, static return, breakeven, and a poor outcome.



This illustrates some of the tradeoffs involved in the strategy. The performance in an upward trend will be excellent, although limited by the call sold at 55 in the event the stock makes a rapid move. In order to achieve this outcome, the investor accepts a potentially larger risk of loss to the downside.  

When I developed this strategy I studied RTN's past share price and operating results and concluded that it is unlikely the shares will spend much time under 40.  I expect the stock to move relatively slowly and trend upwards over the next year or so. Under that set of assumptions the strategy employed will outperform simply owning the shares with a degree of risk that I find acceptable.