"Me too" Options Play

Discussion in 'Options' started by DeepFried, Oct 24, 2005.

  1. I'm enjoying Multioption's thread discussing his trades.

    Here's my latest: bought 10 BSC KA @ $3.10

    Bear Stearns Nov 105 calls. Bought the high. :eek: :D

    Like 98% of the people on this board, I use technical analysis.
  2. cnms2


    I'm following Multioption's thread too. :)

    I guess posting your trade here you made an invitation for opinions and questions, so:

    I just checked BSC and I don't see why you decided to buy the Nov 105 calls. Longer term charts are in uptrend, but I see bearish divergences. Dailies and shorter charts don't look bullish either. Also, I see no breakout.

    When you buy ATM calls you have to be really bullish. They're expensive, and if the underlying drops your calls lose value quickly.

    What's your trading plan: stop loss, exit target, time frame?
  3. Time frame is 5 - 10 days, stop loss and exit target are dependent on my Triple Secret trading technique which says stay long BSC right now. :) I'd be happy to see 109 - 110.

    My feeling on buying ATM calls is - whether I buy ATM, ITM or OTM, I'm long calls and if I'm wrong, I'm wrong. Didn't get OTM's because I like getting more delta faster if the stock goes up but I didn't want to pay up for the ITM's.

    I'm not dismissing the various pricing models and the greeks but people sometimes obsess about some of the more esoteric elements of options trading while ignoring the price of the underlying. If your trade requires that you tweak gamma, that's cool but if you're long calls based on an opinion on the stock, don't sweat it. :)

    Partial reasons for the trade include - market has gone through a typical October pummeling yet has held without a major hit, VIX rose to far above its recent average and is slowly receding.
  4. cnms2


    Let me explain my point about the ATM calls. To compare the Nov 105 and the Nov 100 calls look at the call backspread rationed 11/5 (this is for even money at current ask prices of $3 and $6.6).

    The backspread graph shows that in two weeks the 105 strike performs better only above ~$108, and at expiration only above ~$110.

    Looking at the 3 months IV chart, the current value of about 25% is among the highest; 3 months ago it was 18%. A drop in IV will hurt more the ATM options.

    "Stuff" happens and things may not go as you expect, so you have to plan for the stop loss when you open your position and be ready to push the trigger (sell and take the loss). This is why I asked where is it.

    Your analysis says that the underlying will go up, but somebody took the other side of your trade expecting that this will not happen. I don't have a crystal ball, but if I had to take a side I'd take the other side because BSC charts show me bearish divergences, and I don't think the market is (yet) rallying either.

    Anyway, not having any interest in BSC I'm wishing you good luck, and I'll watch your trade from the sideline.
  5. cnms2 -

    Thank you for your thoughtful analysis. I closed that pig of a trade out at $1.55 today. :eek: Oh well, on to the next brilliant idea. :p

    Today, I then:

    bot 10 Pixar Nov 50 puts @ $2.40


    bot 10 Whole Foods Nov 135 puts @ $6.30

    I'm feeling better about these since they both closed with a small profit.
  6. carpunky



    Should have trusted your gut on this one :

    BSCKA 6.03 -0.97 6.70 6.80 9 4,092 trade
  7. I like your Bear Stearns play...my new theme is buy the companies that manage/trade other people's money. I hit on this theme when this summer read about some guy running a $100mil fund that had a $30 mil home....hummmm.. so bought GS, recently did a Bull put spread on CME (dec 360/350 cr. 2.3)and starting to accum BOT...(100sh yesterday at 110.49 with a goal of 100 sh a month for 10 months and see what happens):cool: