Align Technology Options Present Opportunity

Align Technology, Inc. [[ALGN]] shares may need a little doctoring, but the stock’s options are presenting a great opportunity for covered call investors. Long-term investors can purchase 100 shares of ALGN for $762, write a $7.50 February 2009 call option contract, and gain $110 in profit on their investment. This represents a 14.4% return on investment in just 22 days until the options expire.

The risk is that Align Technology stocks declines more than 14.4% and the shareholders are left holding onto the shares at a loss. Long-term investors that are bullish on the company’s prospects may be willing to take that risk over the long-term, but there may be another solution for short-term investors looking to reduce their risk and increase their returns.

Long-term options, called LEAPS, offer an opportunity for these investors. These options can be used as a stock substitute in a covered call. Currently, the longest term options available are the $5.00 July 2009 call options trading for just $3.50 per contract. This means that investors can purchase rights to 100 shares for $350 and immediately sell those rights for $110 for a 31.4% return on investment.

See “A Better Covered Call Alternative” for more information on this strategy or check out our Tools & Products for more ways you can use LEAPS to reduce your risks and increase your returns.