I'm going to pass out from boredom if we don't see at least a 10
point move in one direction or the other next week. I'm betting
we'll see 130 on Monday. If that happens, and I were you, I'd close
my position and run to the bank. Reason: that's as close as you'll
come to being able to "sell the news", 'cause once the news comes out
all the big institutions will be swapping shares like mad overnight,
and you'll be left with the crumbs Tuesday a.m.
I can't resist telling you about one last option strategy, which as
usual I am *not* recommending, but which you might just try a "paper
position" on and see how it fares Monday. The strategy is called
a "straddle", and it's done when you're confident that a stock is
about to see a violent move in one direction or another, but you're
not sure which way. As usual with option positions, your timing's
got to be spot-on, and if your big move doesn't materialize, you
should close your position immediately and take your (hopefully
smallish) loss.
The straddle takes advantage of the fact that option premiums drop
off in some sort of exponential curve as they move out of the money,
and rise on the same curve on the way in. (Sorry, math isn't my
strong suit, but a book on options should describe the Black-Sholes
pricing model.) So, in this example, to straddle MSFT at 120 you
buy the Aug 125 calls *and* the Aug 115 puts. (or 130 vs 110, etc.)
If the price of MSFT moves 5 points in either direction, one position
gets cut in half whilst the other doubles (roughly). A 10 point move
and the good one triples while the bad one is cut to 1/3 (roughly).
You don't want to hold a straddle for more than a day or two, because
now the meter's running on two cabs and neither one is taking you
to the Ballet.
One hidden danger with the straddle is that trading in options is
quite thin, and it's possible that once the direction is determined
you won't be able to find a buyer for the losing side of your
position. |
