Rick, CRNR held up a little better than I anticipated with the panic-sellers generating only moderate volume. That tells me most holders understand the company's problems and are willing to live with them a while. I suppose I'll hang in there with CRNR a little longer but I lowered my valuation target to $9-$10 from $10-$12. We'll see.
Off topic: I'm not real fond of doing buy-writes with LEAPS. The slightly simplified arithmetic works out that the stock has to stay within the price at the time of the buy plus-or-minus the LEAP price to make money. If the common goes below the buy-price less the money taken in on the leap, you lose. If it goes above the buy-price plus the leap money, there is no further gain. Ideally with a buy-write, you want the stock to stay at the same price you paid for it (at least in the plus-or-minus the leap price range) so you capture the time decay. BUT a lot can happen during the life of the leap. E.g., a friend of mind did a buy-write on CRUS at 20 and took in about $7 with about a year (maybe a year and a half) to go on the leap, giving him a potential profit of 38% (35%+interest on the write money) and a range of $13 to $27 where the position made money. CRUS had earnings problems and is at about $10 3/4. He still has the position and is under water. The point is there's too much time for something bad to happen. My philosophy on options is write nearby, buy farout. If you're judgment is that ADBE, for example, is going up, buying a leap lets you participate with less money and plenty of time for events to unfold. In theory, you can put the rest of the money you would have spent on the common in, say, treasuries, thereby reducing the risk of the total position. At-the-money leaps, for reasons too complicated to post, also have a higher delta (the rate the leap changes in value for a given change in the underlying issue) than nearby at-the-money options. A year 2000 at-the-money call leap usually has a delta of almost $.75 for each $1 move in the underlying verses, say, $.52/dollar for nearby options. Depending on the issue's volatility, a 10% move in the underlying issue translates to something like a 40-50% price move in the leap and plenty of time for it to happen. Anyway, that's my two cents.
ETEC tanked a bit Friday. My puts are up to 2 bid. So far, so good. As I said in my last post, the company is excellent with awesome market positioning and market share but probably facing a couple of flat quarters. I'd buy it long in the low 30s without a 2nd thought.
On the general market, I bought a few OEX puts at the close Thursday based on the (IMO) nuts-o valuation levels (which, of course, could get more nuts-o and eat my lunch). Obviously, I expect a bit of a pullback over the next two weeks to the July options expiration.
Best,
Steve |
