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Non-Tech : KIDE a good play to capitalize on Pokemon craze
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To: Matt Kaarlela who wrote (444)9/24/1999 2:07:00 PM
From: Kevin McKenzie  Read Replies (2) of 1239
 
You could also write short term out of the money calls, if you feel the premiums are way too high. I've never much liked covered calls because it ties up too much capital and there are only three things that can happen and two are bad.

Bad option (1) If the stock drops significantly, then you are hedged with your calls, but you're also forced to either hold the stock while it drops or buy back the calls to sell your stock. I've had much better luck just selling a stock when it weakens, then buying it back lower.

Bad option (2) If the stock goes up significantly in a short period of time, then you lose any benefit above the premium plus the strike price.

This may seem appealing, but if, for example, KIDE goes to 40 and you sold the October 35's for 1 1/2. Then you have the double penalty of watching your capital just sit there while the underlying stock moves up and knowing that you could have made more money in less time just by holding the stock and letting it appreciate.

Good option (3) If the stock sort of flounders, you win, because you get the premium and you keep the stock or you sell it but can buy it back for a small premium.

If you think the options are priced too high, put yourself on the other side of the trade. How much would you charge someone else to buy a naked October 30 call? As I write this, the October 30's are selling for 3 5/8 x 3 7/8. The stock is selling for 31 3/4 x 31 15/16. That's a premium of a little less than $2 per option. Just think how quickly KIDE can go up (or down) $2, given its recent trading history, and the option premiums don't seem so high.

I personally would not take $1.75 in the hopes that KIDE will not breakout to 33 or much higher.

There's just too much potentially good news in the months ahead.
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