Qualcomm (QCOM) at $38

I purchased Qualcomm today (4/23/10) at $38. In addition to owning the share out-right, I'd also would like to sell upside Call and downside Put around 20% out for July 16, 2010. Here is the breakdown

QCOM @ $38
$45 Call (July 10') => $0.18
$30 Put (July 10') => $0.28
Total proceed $0.46

I have created 1.21% of premium.
Here are the possible outcome.

Scenario 1 (stock rise 18% to $45)
This is an ideal scenario. Gain from stock is 18.42%. The stock gets "called" away and we are no longer own the stock. We get to keep the stock $0.46 premium and add that to our gain. Total gain is 19.63% in three months.

Scenario 2 (stock stay at $38)
For three months, the stock has done nothing. Given that the company doesn't pay any dividend, our gain is $0.46 from the premium we sold.

Scenario 3 (stock dropped 30% to $26.60)
This is bad. Because we sold the $30 Put, we have to buy shares when price fall below $30. Given that we bought at $38, our lost is 30%. We are forced to buy more shares at $30 and take an additional loss of 11%. Here is a little break down of the transaction:
Initial buy: $38 x 100 = $3,800
2nd buy prompted by options: $30 x 100 = $3,000
Total cost = $6,800
Since we collected $0.46 x 100 = $46 our cost is $6,754
We now own 200 shares at $26.60 = $5,320
Our loss is 21.23%

This illustration is an example of what could happen. We will look at at this strategy in July.