If you wanted an even more conservative/defensive trade look at the June 10s. They are going for 5 which gives a return on 10.7% if unchanged (i.e. exercised) and 35% downside protection using the calculator on the McMillan site. The June 15s yield less than that if unchanged and, of course, much less downside protection. Having been burned repeatedly by RMBS (how low can it go?) lately I am very interested in downside protection with more speculative issues.
Dale,
Thanks for the advice. Yes, I'm worried about the downside but I must confess to trying to weigh both factors and concluding the 15s gave me the best balance. The 10s leave me on the negative side if they are called.
My own sense for the market right now, for what it's worth, is of unpredictability. And general perceptions about the Nasdaq look to be driving stock prices like Nufo, more than stock specifics. So I worried the price could move up or down quickly, before I could catch things.
Oh, yes, and incidentally, the web site I use for quotes gives a $4.20 premium for the 10s. That's the CBOE site. Where did you get the $5 figure? Which is correct?
My other reason for the 15 was the volume. There is some there but little if any at lower prices. In fact, there was next to no volume on the 10s as of last night and I don't see any tonight. Am I looking at the wrong place? I'm assuming that means there were no trades. In fact, I set a limit order for the $1.30 premiums on the 15s since it looked as if the volume was light even there. Certainly as compared to volume in Qcom, Sebl, and Ntap.
John |
