Hi Izzy, options volume can be deceiving. Naked 47.5 puts could be being sold for a nice potential profit as long as the stock rebounds beyond 47.5...actually a bullish position. Another scenario could be put credit spreads where a bullish investor might sell 47.5 or 45 puts, then buy 42.5 or 40 puts to limit downside risk. Put credit spreads are a bullish position, like naked puts, but they don't carry the downside risk of a naked put. I sold an AGPH 45, 40 put credit spread this morning @ 1 1/4. As long as the stock is above 45 at expiration, the money is mine.
It is hard to make money buying calls. I have been trading options for a few years now, and although I have had some spectacular winners, I have had many losers. When buying a call, you have two strikes against you right out of the gate...1) time value leaking out; quite often when you buy a call it is all time value, ie the strike price is above the current stock price. This time value gets whacked fast, especially in the last 30 days. 2) The stock has to go up to make profit.
In comparison, selling options, particularly out of the money puts or calls, either naked or in a spread is a much easier way to make money, although the maximum profit is limited to the amount you receive from the sale, and the potential risk can be significant on naked options. In the case of the 45-40 put credit spread I sold this morning, the stock can stay even, go up, or even go down 2 more points by expiration and I bank the money. Margin requirement for the 45-40 put credit spread is 5-premium received, or aproximately $3900 per 10 contracts. This works out to about 28% return on margin in 13 trading days as long is above 45 at expiration.
IMO, smart money sells options, not buy them. There is however an occasional situation that warrants the risk of buying calls, and this potentially could be one of them. In that I also own the stock, I won't risk any more cash buying AGPH calls.
An excellent book on options, that is well worth the reading is "Options as a strategic investment" by Lawerence G. McMillian. I would strongly recommend reading if you are seriously contemplating joining the options game.
Good luck.
sf |
