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Biotech / Medical : Momenta Pharmaceuticals Inc.
MNTA 52.480.0%Oct 2 5:00 PM EST
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To: DewDiligence_on_SI who wrote (2549)10/25/2010 3:18:11 PM
From: IRWIN JAMES FRANKEL   of 3027
 
>>My question is: Why would anyone want to sell flood insurance when they know a Category-5 hurricane is indeed coming?

There are a few reasons:

- generate income
- defensive hedge
- play the volatility (high IV)

When MNTA weakened after an asymptotic peak, it seemed some hedging was reasonable. So far - so good.

There are lots of fun things you can do with options. When DNDN dropped into the 20's I started buying shares ~27 and continued to ~24. Then as it stabilized, I started selling puts near term at 27 and 28. When the stock rose to 35 I sold near term calls at 40. When the stock hit 40, I sold the stock, bought back the calls and let the puts expire worthless. That all happened in a little over a month. The gains were twice what they would have been in stock alone.

I often like to sell both calls and puts, knowing that only one can bite me. :-)

When you do options expiring in about a month - it is amazing how fast they become worthless. I have been doing options since 1975.

As to writing covered calls, you may see the hurricane coming and be able to close them out. I generally set a plan to close them in the event the strikes are challenged. You can often stage out, absent a sudden move and still make money on the options AND keep the gains in the stock.

ij
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