Hello,
It's getting a little weird around here.. No doubt about that.
Anyway, I did create my position today. Basically, it is a 'strangle'
financed by simultaniously buying stock long and selling calls. (to
make the unchanged position profitable also.. A situation that is only
possible with a stock this volatile.
Here is the position:
long 1000 shares (on margin) @ 24 1/4
short 10 Nov 25 calls (pocketed 2 7/8 per share)
long 10 Nov 30 call & 10 17.5 puts (placed as a spread, net debit = 2)
3 scenarios:
Iomega unchanged = pocket ~$1000 on 12K investment = 8% return by Nov
(worst scenario)
Iomega tanks = long call worth ~0, roll down short call, take profits on long puts. (If tanks, it should happen
early in period, the 17.5 should be worth more than
the current 5/8. my models show about 2.5 if Iomega
gets to 17.5 within 2 weeks. If below, even better)
profit =~ long put price.
Iomega rockets = cover short call & long stock, ride long call,
profit = $1000 + long call price + ~0 (put price)
MOST PROFIT = Iomega tanks or rockets. (IO gets to 12.5? profit is at
least $5000, assuming I can roll the calls down fast
enough to compensate) = ~40% in one month
rockets = probably at least 50%
LEAST PROFIT = Iomega settles at about 20 or so. (around 4%)
good luck.. I'll talk to you again when things settle ;).
kp
P.S. There is a lot of possible followup action I didn't detail here.
Needless to say, a ton of money can be made here depending on
the behavior of the stock after earnings. Wish me luck ;). |
