Look at the ascents of these two stocks the past 3 months; Look at the bearish engulfing candles yesterday. I'm not fundamentally bearish equities -- so I'm still buying a lot of other stocks, but I couldn't help myself and bought some Oct and Nov puts for GOOG, and some very short term BIDU Oct puts (the IV on November is just too high to buy right now) at close today as a hedge for my other longs. Anyone else see things the same way? Or not? I won't argue that goog may be fairly valued here on a PEG ratio basis, but I just can't imagine the market treating this stock with respect if they merely meet at earnings. Remember last earnings? 550 -> 505 in a few minutes. Is big capex going away? With mortgage lenders out of business, consumer slowing down a little bit everywhere, I just can't imagine GOOG blowing out expectations. BIDU is another story. They have a higher chance of missing just based on past results (they miss as often as they beat) -- yesterday's price action showed me weak momentum hands are holding this stock, at least in this price area. This may sound silly, but I see BIDU trading at $150-200 if they miss. I'm all for multiple expansion, but I can't think of better high volatility hedges for an overly long portfolio. That, and the fact that these correlate highly with the indexes, is very nice. (err. they are the indexes) I haven't fought the trend at all on goog, not until now. AAPL looking toppy too, but I'm not thinking its worth betting against. Yes, it has $30 of froth perhaps. Macbook sales and iphone AT&T kickbacks better kick ass, otherwise all of those earnings projections from analysts don't hold any weight.
<b>Here is my PUT trade on BIDU if I had money to risk. Today is Friday, October 12, 2007 BIDU Closed at $ 322.98 UP $14.20 </b> Buy to open (20) Bidu March, 2008 $310.00 Strike Puts @$52.30 ( BDUOA.X ) http://finance.yahoo.com/q?s=BDUOA.X $52.30 X 100 + $5,230.00 x 20 = $104,600. Close out when option trades at $ 70.00 ( approx 30% profit) $70.00 x 100 = $7,000.00 $7,000 x 20 = $ 140,000 Profit = $35,400.00 ( exc. comm )
actually I was positioned just like this... I've been accumulating FXI and BIDU puts for just this. Now I am basically reloading, going by the assumption that perhaps for these two names we have hit the top (thus prompting a little more aggressiveness). Example: I had a BIDU Oct put (i think the 300) in my book that went from .25 to 7.00 by the end of day yesterday!!! Of course my cost was 5.00. But that drawdown didn't matter since I took the attitude that it may as well be lost money when I purchased them - I've been making a killing recently on the long side. I cut my closest to the money BIDU puts at a slight profit, but left my FXIs open anticipating a bigger move down. Now buying November FXI puts. This strategy does work pretty well considering I get the benefit of carrying longs quite aggressively (via call options) with less risk to the downside, for events just like this. For me on the call side, I bought a ton of BA, some FCX, and others in this dip. Of course its pretty reckless if you are set up on the call side only. A July like selloff will leave you wrecked if long only [esp. since I tend to leverage to the near or 2nd near month long]. Just good portfolio management to straddle both sides of the fence. Here was my positioning: http://elitetrader.com/vb/showthread.php?s=&threadid=105096&perpage=6&pagenumber=2
Easier said than done. Don't forget the Mar 08 puts are extremely sensitive to changes in IV, and they are going to be decimated a bit just coming out of the upcoming post Oct expiration earnings... Of course if you get a $100 move, it doesn't matter. I will get a little more aggressive with my BIDU put buying upon a retest of 355-360. I wonder if we get there. My size is small now, and this is a hedge ... I'm still primarily focused on longs ..
Oh I know much easier said than done. Just fooling around to see what will happen. It will give me the incentive to watch the March 2008 $310. Puts.. When you ( or anyone else ) feels comfortable about puts, post something, even if it is not an actual trade..Might be interesting just to see how a put trade on goog or bidu plays out.
On an IV perspective, a much lower risk trade into earnings would be long November Long 330 put, Short 320 put vertical. leveraged up (or whatever strike combination you feel attractive spending in ... I think a tight spread versus a wide one of 350/-250 is more attractive from the angle of capital allocation and better IV falloff protection). Depnding on where BIDU is when you open it, cost would be about 4.00-5.00, and a large move away would turn these to 10.00 instantly. No move would maintain their value pretty well, and a small move up would probably chop only 1.00 or 2.00 off them. Its a binary gamble either way, though. At least with the verticals the risk is defined and the IV falloff won't necessarily kill you if BIDU doesn't move enough. The straddle is pricing out a $70 move ... thats too much IV risk. In fact, I might go into earnings positioned like this: Short at the money straddle Mar 08. Long 330/Short 320 November vertical. That way even a $50 point move down pays. The march straddle is going for about $120 !!!!
But with BIDU once it hits 360 again then the next stop more likely will be 400+, I think buying calls at 360 would be better. The trend is up, no sense trying to call the top.