Vox Rationalis

Sanofi-Aventis: Play This Low-Risk Combo Along with Buffett

Now let's see what happens if there's a major shock to the stock.

Let's say it recovers to $40, the midpoint of its 52-week average, in six months. Your puts go away, and your underlying gets sold for $32,500. No change - still up 20%. Of course, had you just bought and held, you'd be up 23%.

Now let's say it goes the other way by the same amount, to $25. As you say, you now have 2,000 ADRs at $29.79 - and a loss of $9,580, or more than a third of your original investment.

For your limited gain if SNY stays within a specific range, you're trading away ALL of your upside potential if it exceeds this range and HUGE potential losses if it falls out.

By the way, I don't think there's much chance of SNY hitting $25 this year. But the other way? Six months ago, it was just under $46. If it gets back there this year, your strategy misses out on nearly $8,000, or an additional 21%, in appreciated value.