The strategy I was referring to is actually called a 'straddle'.
What you do is buy both puts and calls at the same strike price.
Currently, Iomega is trading around 15. The 15 calls are going
for 2 1/2, and the puts are going for about the same amount.
(November contracts). September contracts are a lot cheaper...
Therefore, I would only 'profit' if Iomega closed above 20 (15 + put
premium + call premium) or closed below 10. This spread is much too
wide for my comfort, Therefore, I believe I'm going to hold off and
give the premiums more time to diminish... (this strategy works
well right before earnings reports.. I used this with USRX, and
I may do it again near the Iomega report.) The premiums are lower
if you buy the options that expire the soonest after the earnings
report, and create the 'spread' close (in time) to the actual
report.
The one thing I like about the strategy is that there is limited
risk, and it is VERY difficult to lose all your money. (The stock would
have to close exactly at the strike price). The negative is that 90%
of the time stocks don't move, and a rather large move is necessary
to make a profit. But, on the other hand, the potential profit is
limitless.. (well..almost limitless...).
By the way, I don't recommend the above strategy for those not
intimately familiar with the way options work.
good luck,
kp
P.S. This is the last I'm going to post about this.. There is an
options specific thread at SI. |
