Jim:
I am neutral minus on AOL as of Sunday. I might be able to take side on Monday. For the mid-term, just be sure to keep an eye on the open interests as time goes on. It helps finding order out of disorder. I correctly pointed out (this time) that March would expire at 40 or 45 and called for buying March 50 or 45 puts day before it hit intraday hight of 48, about two weeks back. I mentioned "put all eggs in one basket" (on AOL puts), for what it was worth. (That would have been >400% at expiration!)
The basis was: open interest 1-2 weeks before expiration was extremely high on March 40's, put or call- thus, this was an easy call. For less obvious ones you need a computer to do some linear programming to get the most probable price. But the daily pricing that you mentioned about AOL while it was moving fast requires some more sophisticated modeling. I wouldn't pay for a steep price at that time. It would be a total rip-off. Unless you are really ps'ed-off and it would make you happy even for a 10% profit.
(Please do not try this at home! It takes some other things that only our big brothers can afford! Just be sure that nothing is for sure!)
Usually, if time value is not too high, 10% stock price movement = 100% option price change. For the like of ZITL, you have to catch the top or bottom or you will be burnt by the sheel time value. If I'd do it, I need to believe that it would go 20% up or down (i.e., 200% for option) to warrant my action. And then I would get out at 100% if I got confused along the way (by the hidden hands).
See, such sudden change of directions was common for AOL. I am used to it. On Friday, I was laughing while it was moving toward 41-"here it comes again!", I told myself. It typically would move up to wipe out the puts, and then down to cut down the calls. As much as they can get anyway. What a s'ty world!
God bless us! |
