If JJC is fortunate to have the stock rally or "spike" (whatever that means) right after he buys the calls, he could lock in a small profit, if he sells enough stock. Selling the stock in bits and pieces would not be enough to guarantee a profit. The only possibility of a big gain comes if the stock tanks below the strike price of the calls AFTER he sells the stock. That's why he probably would sell 100 shares per option, and not 80, even though the delta right now might be 80. If the stock tanks before he sells the stock, the most he could lose is the cost of the 55Cs. If that happened soon, he's probably would bail, since there would be some premium left, considering that they're Jans. If the stock doesn't move much at all, he loses the time value, just like any option buyer would.
"In February 2000, hedge-fund manager James J. Cramer proclaimed that Internet-related companies 'are the only ones worth owning right now.' These 'winners of the new world', as he called them, 'are the only ones that are going higher consistently in good days and bad.' Cramer even took a potshot at Graham ..." A $10,000 investment in Cramer's top ten stocks (www.thestreet.com/funds/smarter/891820.html) would have lost 94% by 2002 ... leaving you with $597.44. -The Intelligent Investor, Graham/Zweig 2003 revised, page 16 Of all Zweig's recap and analysis of extremely poor investor recomendations during/after the Internet bubble, Cramer's stands out as the worst.
================== Freehouse; Think a lot of them on CNBC do that; dont think Cramer does that however. Sounds like he still has a slightly short bias, his deep ITM maybe wont lose that much. When the oil/gas companies lowered thier prices friday,, before the Senate hearings this week on how much tax & gas profit the gov & oil companies have made lately. Sure cant blame the hedgers on CME for that.
I do believe that Cramer is on coke or crack the guy runs around sweating like a marathon runner and talking approx. 100 mph ...he is just a egotist front running his own picks
another gem from cramer: Go behind the scenes with me to the Sears Holdings (SHLD:Nasdaq - commentary - research - Cramer's Take) September $125 calls and puts. As I write, the calls are about 60 cents and the puts are about 70 cents, with the stock at $124.70. All week I have watched these two contracts. When the stock was in the mid-$120s, I saw intense selling of the $125 calls for three-four bucks. It was relentless selling, and I believe a lot of it was short and some of it was just plain selling to close. But as the stock kept getting hammered, I saw the puts pump. When the stock got to $126, guys were trying to buy puts for a buck and change. Then sellers materialized there, too. Now, with the stock at $125, I see guys selling puts and calls like mad. You know what they are hoping for? If they can keep selling puts and calls, they eventually can pin the stock at $125 where both will go out worthless. Most of the actual owners of Sears calls and puts are small-timers. They don't want to take the common in or be short the common. If the stock closes at $125, give or take, 10 cents, I bet both put and call holders will let them go out worthless, so the short-call-put trade is likely to have less risk than you realize. So if you have a lot of capital, you can keep banging both sides of the trade -- puts and calls -- to get it to close at $125. Remember, at a certain point, if the puts get too cheap and the stock seems like it will stabilize, traders will come in and buy common and the put and then sell the call, which, when the stock looks like it will stabilize, might pump a bit. No matter; this stock, barring a catastrophe, will be going out at $125 and everyone short puts and calls will make out like a bandit.
Guy is retarded... he's inferring there is some play in the conversion[long stock/short synth]. He's ignorance is hitting NH. Yeah, great play to sell the atm straddle for an hour's sigma.
Sorry but I'm not following you. Do you think the concept of going long gamma and then going short common on rallies is wrong? Or are you disagreeing with the idea of selling "a little?"
I disagree entirely with how this vague trade is structured. There is no mention of anything concrete, other than a $350,000 call position. Imagine some macro event in which CL drops 10 handles overnight and the stock trades down $3 in sympathy. You're looking at $100k out the door. There is no mention of adequate, dynamic hedge. Sell a little on rallies? WTF do you tell the guy who bought $350k in calls into a decline? Suck it up? PADDLES! PADDLES!! He's stated this is a vol-play, although choosing deep ITM options with virtually zero vega isn't what you want to do to play a proxy for CL volatility. If you want to play upside gamma, buy OTM. If you want to play vega, buy ATM a few months out, but don't buy deep ITM 80+delta calls for their vega -- there isn't any!