Thanks for the PM. I understand what they're saying, but still can't make up my mind what to do.
I realize, after mulling it over for the last few days, that what I'm trying to do is squeeze some profits out of the short-term volatility. This is hard to do for anyone, and my track record on ST options is not very good. I've made money this year on them (other stocks, not NTAP), but I've taken large losses in other years. In contrast, my track record with buying and holding longest-term options (2+ years out) has been excellent. I should just keep doing what's worked in the past, and quit trying to do something that I'm not good at. Or at least, only do it with a small amount of money.
The problem with selling covered calls against NTAP (or QCOM) is that, when sentiment changes, the stock can make a huge move, very quickly. Which risks losing the position, just as it takes off. The whole point of taking a long position is to capture those huge upmoves, which I'm fairly certain will happen sometime, but have little idea of exactly when. In late September, I would have heaped ridicule on the idea that NTAP could be almost back to 20 by year-end. I would have come up with a list of TA and FA reasons why it couldn't happen. Probability, <5%. Yet here we are.
I can see two realistic scenarios ST:
1. NTAP stalls right here, just below the 200DSMA, and goes a lot lower, likely retesting the 50DSMA, and (small but not-zero probability) returning to 6. I say "small", because I don't see that level of panic selling returning (absent another WTC), and management has given us reason for hope that wasn't there to support the stock in late September.
2. this vault upward goes on, busting through the strong resistance just above. We are in a breakout, supported by a re-assessment of the fundamentals of the company by investors. Plus, this is rapidly becoming a momentum stock, with money flowing into it from investors who don't pay any attention to the fundamentals. Every up day makes tax-loss selling less likely, in a self-reinforcing cycle.
One more limit sell order hit today, my last lot of EMC stock at 16. Still holding all my EMC LEAPs (04C20). Nothing left to sell that is underwater, so I'm done for the year. Since I still can't make up my mind what to do, I'm still sitting on my hands. I should just quit watching, go skiing and work on my carpentry projects. |
