William,
<AOL and JPM are my picks for next week>
Thanks for the analysis. I hold puts on AOL and am always interested in views counter to my own. I used to do technical analysis until I read James Glieck's book - CHAOS - at which time I stopped analyzing noise. Mostly I look at management. AOL management appears, to me anyway, to be dismal. They spend a lot of time on spin, supposedly in hopes of getting one last secondary offering (and I suspect sneaking their own shares into the shoe).
I watched with great interest the options activity on Friday and agree with Ramsey Su that the activity is suspicious. The option clearing center does an automatic exercise if the intrinsic value of the option is 75 cents of greater. They base this on the bid price of the underlying stock and that meant anyone holding Feb 35 puts would get an auto exercise if the AOL bid was 34.25 or lower. It was actually 34.375 - so no autotrigger and noone gets 'put to', that is forced to buy the stock. You could still have exercised manually, but large players (I'm told) use the the auto exercise. Also after factoring in commissions, being in-the-money by 50 cents or less isn't worth much. These 'wash trades' if indeed that's what they were, make the stock look sleazy and I suspect this doesn't go unnoticed by the Street. As to who does this? I don't know for sure, perhaps a large firm(s) with clients who wrote puts and don't want to pay $35 for the stock.
I would personally be hesitant to apply any technical analysis technique, no matter how sophisticated, to a stock where the price is 'managed'.
Anyway, I think you'll see mid 20s on AOL before the March expiration. The thread has detailed the company's financial woes well enough and if you add in poor management at the helm, a poor image with the media, and dwindling support from investment houses, you have a stock ready to fall (IMO).
Incidentally, I rarely buy puts on stocks, preferring to play the long side but with the market overbought (IMO) and AOL so overvalued (IMPO) I couldn't resist. But to coin a phrase 'I COULD BE ALL WET ON THIS ONE'. Good luck! |
