Craig; I just looked AOL over, the last week before expiration they tend to wip her around a lot and shake people out of call, put positions.
Here is something I see in respect to the July options.
Friday AOL went up 2-9/16.... 70 calls up 1-3/16 BUT puts lost 1-3/8 note the calls went up slower than the puts lost, if she goes down the reverse will happen..now both sets have a 1/4 th spread on ask/bid ( that s way to much ) but the skew between the 3/16 and 3/8 is also a spread..that's hidden. So the real spread on the options is 7/16th can you picture that, on a 2-1/2 option almost 18% , and the same will hold true when you exit.. for a total of a 36% edge to the bookie..not counting your commissions. To do a straddle you wind up paying the bookie 72% and have 2 sets of commissions.
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Lets say I buy the 70 calls on the open at ask 2-1/2 and short the stock at her close 71-1/4...I now have a position that covers my rear..
for a cost of 1-1/4 ( dif between the call and my short sell )
my break even point is now 68-3/4..below that I make money. My risk is 1-1/4 plus commissions. How ever I may cover at 70, and still make
money if the call has over 1-1/4 left in it.
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70 puts are selling for 1-1/2 , risk 1-1/2..break even is 68-1/2,
if she don't fall fast in the first day or two. ( No good.) you
could make it, but the call/short..at 68-1/2 is 1/4 ahead
with the chance of some value still being in the call..or increasing
after you cover.
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The puts are too High, calls and short sell are better of the two.
to top that off if she drops below the 70 far enough to were calls
become worthless I make more on the drop..and save the commission of
redeeming any value left in the calls..in this case I'd want to lose
the calls , worse case is she goes to 80, I sold at 71-1/4
but can call at 70 no matter how high she goes, exercise the calls
at 70 to return the stock, I still only lose the 1-1/4 plus
commissions..this also beats a buy stop all the way around, as if
I set the buy stop at 72-1/2 with volatility I will run a real
chance of getting picked off..if a gap up were to happen the buy stop
may trigger but not clear at 72-1/2 in a the event of a gap up.
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I will be out of town at least two or more days this week, so I won't play her in any event as I can't watch the action. But if I were it would be the calls, with a short sell type straddle.
Jim |
