BEFRIEND THE TREND Short-term Options Trading Thread Message Board

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Strategies & Market Trends : BEFRIEND THE TREND Short-term Options Trading Thread

QQQ 626.24

-0.1%

Jan 13 4:00 PM EST

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To: Dr. Stoxx who started this subject	1/27/2002 6:26:58 PM
From: SusieQ1065	Read Replies (3) of 4058

Hi Thomas...good idea for a new thread...I, too, have recently become interested in Options trading and I've been devouring everything I can read on the subject... Here's a straddle strategy suggestion from OptionInvestor.Com for upcoming earnings play AOL...(I love the idea of straddles...you expect some upcoming volatility on a stock but you don't know in what direction...you need a big move for these to payoff, and earnings reports oftentimes provide those huge moves.) When earnings events come they sometimes provide great play opportunities and sometimes great losses. When expectations are so high it is not hard to disappoint and gap down after the event. Conversely when expectations are very low it is sometimes easy to get a reversal bounce as shorts are forced to cover on good news. AOL is one of those depressed companies. While they have the possibility of surprising either way it appears that many investors are counting on riding the biggest Internet stock of all right into single digits. Considering the clout of AOL and the new deals the Time Warner connection has provided them, it is entirely possible there is a positive surprise in their future. Isn't investing fun. Everybody gets to have their own opinion and be proven wrong 50% of the time! My suggestion on AOL is the Feb-$27.50 straddle. The stock is resting exactly on the strike price and the options are cheap at $1.25 each. For $2.50 you can have a three-week play for either direction. It is entirely conceivable we could get a dip with earnings and then a rally once the bad news, if any, is out. This is a high-risk play and should the stock hold at $27.50 both options could expire nearly worthless. I would bet you $2.50 that this would not be the case but then anything is possible.

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