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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: Dan Duchardt who wrote (10821)5/17/1999 1:29:00 PM
From: Dan Duchardt  Read Replies (2) of 14162
 
More on EDFY

I can't believe what I am seeing. The news on EDFY breaks announcing that Security First has agreed to "pay" $345M for a company with a Market Capitalization of only $265M. That should put the value of EDFY stock over $19 from it's current level of $15. EDFY ran up to 16_7/8 on the news, but then pulled back to the $15 range, down 9/16 for the day. OK, so it's perhaps the sell on the news syndrome, or people don't believe in the value of Security First stock, or some such thing. But the truly amazing thing to me is that the June 12_1/2 calls are WAY down, far more than the stock, down 1_3/4 from the last sale on Friday when the stock was only at 15_5/16. I bought mine back in my paper trade at 3 even, just 1/8 above where I sold them when I rolled up from the June10s when the stock was at 12_5/16. It's like the premium bubble on this thing suddenly burst. Of course the June10 puts that I bought for 3/4 are now only worth 1/16; so much for a delta of 2% on those.

I'm not sure what to make of all this, but for the moment I am long EDFY (on paper) with a NUT of 11_13/16 and long on the puts that have dropped 11/16, so I'm effectively in at 12_1/2. The day's volume is strong, so I assume the news is taking hold, but on a generally down day the stock is not moving up. I could understand the premium collapsing if the stock moved to the buyout price, but I don't understand why the calls seem to be selling at a discount to that price. What am I missing here?

Dan
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