EXCO Resources, Inc. (XCO)
- The strategist appears to have purchased 300,000 shares of the underlying stock for a price of $19.30 each
- While selling 3,000 in-the-money calls at the January 2011 $19 strike for a premium of $0.80 apiece
- The sale of the calls effectively cheapens the cost of getting long XCO shares to $18.50 each
Okay now check this out--
If the calls are in-the-money at expiration, and the shares are called away from him at $19.00 apiece, the investor exits the position with maximum potential gains of 2.7% on the rise in shares from the effective purchase price of $18.50 to $19.00. If shares cool ahead of expiration, the trader may choose to keep the shares and benefit from bullish movement in the price of the underlying stock at any price above $18.50.