Joe,
Thanks for the excerpt on combinations. I guess am in the middle of a long combination involving ORCL. Until I read the excerpt you posted, I didn't realize that it had a name. I'll have to get that book. McMillan's references to combinations seem to involve only short positions.
ORCL has been trading between $20 and $30 all year. For most of that time, it has moved between $23 and $27. On 7/20 ORCL closed at $27.56 after about four days of relatively flat sideways activity. Stochastic curves were at about 90, a high unseen since April 1, with the fast curve flattening. Prices touched the upper BB on 7/17 and 7/18, and had been moving sideways away from the band since. RS was around 70 and flattening. Volume had been moderate. These things, along with overall market sentiment, led me to believe that ORCL was likely to decline in price near-term.
The recent upward price movement in the stock had caused the Aug 25 puts to be quite reasonably priced. So, on 7/21 I bought 10 Aug 25 puts @ 3/8.
Sure enough, after a bit of a bump on 7/21 (unconfirmed by RS or volume), the price began to decline.
On 7/23, as the price declined further, the Aug 30 calls became available for 3/16, so I bought 10 of those.
On 7/24, intraday, the price pierced the lower BB declining as far as $24 and, although the RS was still well above 50 (but declining), and glancing at the historical chart showed no support until around 23, the fact that I could get about $1.5 to $1.625 for my puts and that we had pierced the lower BB led me sell my puts @ $1.5. Not a bad 3-day return.
Now we'll see what happens to the calls. If ORCL performs as it has, I may be able to pump it for quite a bit!!
-Bob W
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