<pyramid sell orders on RMBS>
I have a core position in RMBS which I'm willing to sell, ie. 500 @115, 1000 @116, 1,000 @117, 1,500 @118, 1,500 @119, etc. In fact, the first two orders were filled Thursday afternoon.
Alternatively, a stop can be placed under the same number of shares. The stops can be adjusted higher as the stock moves up.
Your comment regarding the sale of covered calls is quite valid, as a second alternative. In fact, the high implied volatility on the call options make it particularly favorable for those who like to profit from time value decay. ie. instead of selling RMBS outright at $115, the July-115-calls can be shorted at $2-3/8. If at expiration, the underlying stock is above $115, then the common shares are called away, with proceeds to the seller of $117-3/8. The implied volatility of the calls were around 75%, making it a juicy short for an option which only had one day left until expiration.
The reasons I sold RMBS outright:
1) Needed to raise some cash (see item 2 below). RMBS has become the largest position in my portfolio. :)
2) I shorted the Nov-95-puts for a premium of around $10. Effectively, I was taking on the risk of having RMBS delivered to me at a cost of $85 in November. Instead of shorting time value on calls, I have been shorting time value on puts. I believe that this is a conservative way of buying RMBS (rather than just buying at the market). I believe that a pullback or consolidation is a more likely than a further parabolic rise. However, I prefer not to "cap" the upside in case the current rally moves the stock to even higher highs.
3) Given the short-term volatility, I was indifferent to receiving $2-3/8 in time value VS the possibility of RMBS falling down to $112-5/8 ($115 less $2-3/8). Sure, in hindsight, I may have been better off shorting the calls...
Let's see what happens today (Friday). |
