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Strategies & Market Trends : Swing Trading With Options
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To: underdog430 who wrote (7)7/26/2001 3:22:53 AM
From: tuck  Read Replies (1) of 88
 
Mark,

Sorry, I'm rusty at things other than writing. I've been busy and the estimates were hastily arrived at; partial brain failure on the deltas (forgot the gammas become meaningful in big moves). I agree that your numbers are probably closer to reality, particularly on the puts, which lose time premium quickly when they go deep in the money. Though it ought to be a little better than the wash your numbers imply; I'd think $8 added to the puts in the scenario I gave, but I'll compute this tomorrow. I don't think the loss of volatility is a big issue, as this play closes in two days, so that factor doesn't kick in to any meaningful degree, IMO. Nor will the calls be worthless should the approval not come. One can likely sell those on the dead cat bounce the next day or even the next hour. Converse also holds in the other direction for the puts. These retraces hold the volatility for a few days and keep the prices up. The tricky part is finding the bottom or top via TA and slackening volume on the stock.

So I'll look for no more than $3 on the whole thing, which ain't bad annualized. Didn't mean to sensationalize this too much; I'll run the numbers for the anticipated retrace side of the play -- an important part -- tomorrow and post. Then we should have a better picture. Hitting the hay for now.

I see I'd better bone up on my McMillan to play with you guys.

Cheers, Tuck
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