I made a gamble today and we'll see if it will pay off soon. I bought 40 NKQ (Novel options) Feb C 15 and sold Feb C 17.5 for a spread of 1 3/16 (I could have gotten it at 1, but I was too slow). Anyway, the reason I took the bet is that NOVL has one of the most impressive chart patterns in the market and its fundamentals are greatly improving. This is a gamble as oppose to an investment, because I am solely making the bet that NOVL will beat the estimates and will have one shining conference call tonight. We'll see if the bet pays off.
There are 15,645 contracts traded today alone! So by far the gambling community agrees with me. In fact, they agree so strongly, that I almost pulled out of the trade, not being one who enjoys moving with the herd. The positive news may in fact be built into the run up already. But in the end, I decided that it is a bet worth taking, if I shift the odds a little. So rather than paying for the Nov (or Dec) 15 and 17.5 calls at absurd prices, as I originally had intended, I bought the spread, 3 months out.
The points to note here are (a) I know that this is a gamble and not an investment. (b) I am buying options in company that based on my analysis is worth investing in and has the momentum in my favor (momentum is very important for short term trades). (c) I got me a rather "fair" price rather than getting in at any price during the frenzy today. (d) Knowing that this is a risky move, I reduced my risk by playing a spread rather than buying a straight call (So I won't be able to buy a Porche out of this trade, but doubling the money in 3 months is not so bad either). And finally (e) I gave myself enough time to get out of the deal if I change my mind (which I could not do if it was to expire this Friday).
Sun "Feeling Lucky" Tzu
O' and I did not bet the farm on this. |
