Skeeter, you are going to make me pull my remaining hair out, regarding options!! Don't you and others ever do speadsheet analysis of the
various options, and returns at different prices?
The first question to determine what option to buy, is what is your target
price of MU by Friday?
As an example, let's assume the price of MU is 22.5, the Dec 22.5 option
MUXX) is 1.5, and the Dec 25 put (MUXE) is 3. Now assume you
hold the options until Friday, when there is no premium. What is the
return at MU between 25 and 17?
Here are the profit/loss at those numbers:
MU MUXE MUXX
25.0 -100% -100%
24.5 -83% -100%
24.0 -67% -100%
23.5 -50% -100%
23.0 -33% -100%
22.5 -17% -100%
22.0 0% -67%
21.5 17% -33%
21.0 33% 0%
20.5 50% 33%
20.0 67% 67%
19.5 83% 100%
19.0 100% 133%
18.5 117% 167%
18.0 133% 200%
17.5 150% 233%
17.0 167% 267%
Consider the risk-reward of the trade. The stock must trade below 20
for the MUXX to be a higher return. Anything above that, MUXE is
better, and anything between 22.5 and 25 is a 100% loss on the MUXX,
whereas, you still have some money with the MUXE to play another
day. Just food for thought.
Patrick |
