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Trouble with most calls that people buy [at or out of the money] is that if the stock goes way up, you win. If it goes up a little, stays the same or goes down, you lose. One way to win, three ways to lose. Do it enough, and it is no surprise what the outcome will be. Another problem is the horrible bid ask spreads. Ex. 5 X 5 1/4 doestn't sound to bad. Well, it is 5%. Turn over four times per year, and there is 20% to overcome before making a dime [plus commiss.] Think the way to win is going the other way and selling premium? A deceptively alluring concept that is frought with perils not obvious to participants. I will not go into them unless requested. Now forewarned, if you still want to do options on SFE, here goes. Consider the Aug. 25$ calls around $12. Three to one leverage and a premium of only 2.8% or around 5 1/2 % annualized. Not bad. In your example, if the stock goes to $47 they will be $22, almost a double. If it ends unchanged [$36] they wll still be worth $11, whereas the $35s will go from almost $5 to $1. Another way to play it is to [if qualified], sell the Aug 35$ puts uncovered for around $4 1/2. If SFE ends up at $35 or higher, the premium of $450 per 100 sh. is yours. If SFE ends below $35, you either buy back or let SFE be put to you at $35, minus the premium received of $4.50, so your net cost would be $30.50. I still think the best way, if you already own SFE and just want to add is to wait for the inevitable partial retracement of this current run and add then. It is to early to tell what price that retracement will start from and then more importantly how far it carry, but hopefully, we can identify it here in real time. If I did not own SFE at all, I would grit my teeth and take a partial position here. Price projections are tough, but with the volume and action, a meaningful correction [5+points] won't likely happen soon and may not happen until SFE is quite a bit higher. By the way, hopefully, all realized the post last Fri. on SFE was facetious. $125 fair value based on Fibonacci of CMGI etc. is like determining fair value based on the square root of the distance to the moon divided by 100. The absurdity is that with the outrageous pricing methods being touted to justify internet stocks, I realized a day later, that it may have been taken seriously. OT: My friend who has little investment experience, called early today and reported how much he had made already for himself and all friends/relatives that recently bought CMGI. [up $70 today]. I only said congratulations, but thought again, "It' not the making it that is hard, it is the keeping it" |
