Paired Trades and Hedging Strategies Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : Paired Trades and Hedging Strategies

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: Biomaven who wrote (43)	12/7/2004 3:52:11 PM
From: Sam Citron	of 136

Options Optimism at Play URL: thestreet.com As has been widely noted, Sirius Satellite Radio (SIRI:Nasdaq) has become one of the most popular speculative trading vehicles. It represented nearly 10% of the Nasdaq's volume Monday as it continues to ramp higher. The stock has more than doubled in the last five weeks and was up another 10% today in recent trading. Its options are once again near the top of the most-active board and have logged over 85,000 contracts thus far Tuesday. A preponderance of the volume has been focused on the call side: more than 2.5 calls have been traded for every put. The December $10 and January $10 strikes are getting the most play. Sirius Volatility The implied volatility has been climbing. The January $10 calls are currently over 105%, up from 65% just three weeks ago and approaching the 52-week high of 115% hit last January. These should be starting to draw premium sellers to the flame. I'd proceed with caution here because it's impossible to know where it can stop. Still, with the company raising its subscriber-growth projections, it's getting increasingly dangerous and vulnerable to any disappointment setting off a 20%-30% "correction." One approach might be to short the December $10 calls at 90 cents and buy some stock on a 3:1 ratio (short three calls/buy 100 shares). This starts as delta neutral, gives you downside protection to about $6.25, and has a maximum profit of $3.70 per 3:1, which can be achieved at $10. Be aware, though, that it starts losing money and gets increasingly short above $11.50 per share.

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next