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Strategies & Market Trends : Option Strategies
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To: Jim P. who wrote (1733)8/20/2016 10:23:33 AM
From: Cliff0rd  Read Replies (1) of 2591
 
Maybe a silly question, but how do you know that it was oversold? I had this with Gilead Sciences recently when they announced their earnings and the stock dropped quite a lot. I bought a call because I thought it was oversold. A day after buying the call, I sold it with a small loss, because I considered it wishful thinking. The stock have not bounced back much. From its lowest point of 78.x until 80.x.

I am really interested in the formation of prices. Of course, there is a random aspect in this. However, I also consider it possible that some movements can be explained. Examples are earnings releases or other important announcements. Furthermore, the movement of stocks to a certain price at option expiration days or the post-earnings release drift are two advanced examples.

From a risk-management perspective I was wondering why you sold a put instead of purchasing a call? You could profit more and have a lower risk of loss of capital in case you got the put assigned.
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