FYI - to the thread - I just wrote this in a PM to someone - do not take this as direct advice (or even what I'm doing), just as food for thought:
Well, any suggestions what to do with my money now?
Premiums on Q options are stratospheric. I calculated implied volatility on January calls this AM at 135%, an outrageously large number. I cannot justify buying long calls at those kind of premiums (of course, I said the same thing at 400 and 500, so what do I know? <g>).
Logic would say the best way to safely take advantage of the current situation would be sell some of that huge premium via:
(1) low-risk buy-writes: buy the stock, sell the ATM near-term option for about 10% gain in a month if the stock holds up...right now, for example, you can buy Q for 645 and sell the Jan 640 call for about $90 - a 15% return in one month if Q holds above 640 and you get called out on 1/22/2000; breakeven or better if Q holds above 535...hard to argue with that kind of return...
or (more aggressively)
(2) conservative ITM bull spreads (example: a Q 500/620 Jan bull spread in calls - natural difference right now is 72 or so with Q at 647, spread will be worth 120 in three weeks if Q stays above 620, breakeven point is of course Q at 572 at expiration. If you're moderately bullish enough to assume 620 is sustainable for awhile, getting (120-72)/72 = 48/72 = 67% in three weeks is not exactly a bad way to place a bet!
Again, just trying to get people thinking. Don't trade unless you work out the numbers yourself and understand all the ramifications of a strategy.
-Rose- |
