Cramer's COF timespread

Discussion in 'Options' started by AAAintheBeltway, Jan 21, 2004.

  1. Yeah, I agree. Scary to think of all the neophytes who blindly follow his advice. Oh well, it's good for liquidity.
     
    #11     Jan 21, 2004
  2. I noticed that but I'm worried if they do a quick deal, the junes kind of leaving you in a bind.
     
    #12     Jan 21, 2004
  3. Why? Is the takeover price expected to be below $65 (your estimated break-even at Feb expiry, assuming vol stays at these levels)? Or are you concerned that vol may come in on news of a deal? If so, the risk seems low given that the implieds are at the low end of their historic range. If the concern is t the upside (beyond $75 or so), you could always ratio this. But in that case, its the short Feb's that would be the problem, not the long June's.
     
    #13     Jan 21, 2004
  4. Not sure I understand how you get that b/e.
     
    #14     Jan 21, 2004
  5. OpVue.
     
    #15     Jan 21, 2004
  6. Just hope that if a takeover does occur, it will not be a take for cash.
     
    #16     Jan 21, 2004
  7. What's wrong with cash?
     
    #17     Jan 21, 2004
  8. Then if you have a calendar spread on (long June calls for example), the time premium would be sucked out.
     
    #18     Jan 22, 2004
  9. Cutten

    Cutten

    What about short Feb 70 calls, long March 70 calls for a debit of about $1 based on closing prices yesterday.

    Another would be to short the Feb 70s, then buy 2 of the March 75s, or 1 March 75 and one Jun 75.
     
    #19     Jan 22, 2004
  10. Ok, I see your point. I saw that as the risk of the Junes but didn't appreciate the all cash aspect of it.

    In any case the stock blew away the consensus numbers last night and is trading over 3 points higher. All those "morons" who Cramer said paid way too much yesterday for the Feb 70's are feeling like geniuses.

    If we looked at this situation as one in which we simply wanted max gamma, ie there would either be a deal at much higher prices or the stock would crater, how would you have played it? Short stock and long calls? What are the tradeoff's between playing a potential takeover that way instead of using a timespread?
     
    #20     Jan 22, 2004