Hello All,
I just found your board and thought I would kick in my two cents worth. I have quite successfully played options on stock splits and I can honestly say that I have only lost money on one trade. HWP in July 1996, bad news, bad market just prior to their split. I have now changed my attitude on options and in 99% of the cases, I only do options on stock split companies.
There are several plays here, the most risky and dificult is getting the options immediately after the announcement and riding for a quick play. I have had limited success with this and unless you are a professional trader it is extremely difficult to pull off. (I have serious doubts about being paged with the news, getting to a phone, checking the company price, deciding which contracts to buy, getting the symbol and buying the option before other more nimble traders already have the price up)
After the announcement the stock may or may not have a run for several days or weeks, but one thing I have found is that three or four days before the split actually occurs the stocks move. That is generally when I buy in and I generally sell the day of the split. Depending on the chart and the action of the stock, market etc. I will sometimes buy puts the day after to play the profit taking. Case in point PAIR. Bought Dec 50's three days before split (four days before options expired-not for the weak at heart) at $4, stock ran to $35 after split ($70 pre split). Sold the calls and should have but didn't buy puts, stock came down to $32.
In general it seems as though a stock really needs a couple of weeks or months before it really starts moving to the old price, ZITL excluded:). After the post split correction you can go in with some longer term options.
I hope I haven't been too long winded. This is one of the best ways to make money in the market IMHO, but you can get bit!! I lost a ton on HWP, knocked me back to where I was in March. Anyway, I will be visiting and kicking in my two cents now and again with your permission. Please if any of you are into covered call writing, please post your picks on the board I started "Covered Call Picks."
Here's what is coming up:
CHK 2:1 1/2/97 (already started assault look at Friday)
SIAL 2:1 1/3/97
ALTR 2:1 1/7/97
FRE 4:1 1/13/97
STB 3:1 1/15/97 (there is some confusion on exact date, but I think this is right)
DWD 2:1 1/15/97
Stocks to watch that have split, run up and settled back.
FDC, HLT, DSPC
Happy hunting!!
Rgds BDodd |
