circuit-racer

Please provide a litte more detail on your leverage comment.

Jim Reichard

I would like to bet that the price will be higher in 6 to 12 months.

circuit-racer

You could Buy Jan 2011 $2.50 calls for about $1

Delta is .72

Intrinsic is .44 hence $2.94 on the stock $2.50 strike + .44 = $2.94

Less risk than buying the stock at $2.94 and having it go to 0.

Max risk is $1 x 100 shares = 1 contract ($100 max loss) theoretically you have unlimited potential with a bought call just like owning the stock. You will get almost a dollar for dollar move with the call in correlation to the stock. This isnt something you are going to take profits on in a week unless the position sky rocketed in that time frame because of the time involved in the trade.

If TAT goes to $5 you might make around $1.40ish so pretty close to owning the stock with a little less risk.

Bigger risk on this trade is the low volume not just on the stock but in the option as well. If the position did make a big move the volume would be there when you needed it but right now there is no volume at that position. One of the reasons I dont trade stocks that are a couple dollars.


I dont know anything about this company so any decisions based on this data I showed are up to you.

Jim Reichard

Thanks a lot for your help on this matter. Am I correct in saying at current prices if I buy 30,000 shares my loss could not be more than $30,000 dollars?

circuit-racer

No problem! If you buy an option your max risk is what you paid.

If the call purchased was $1 per share x 30,000 shares = 300 contracts ($30,000).

300 contracts or 30,000 shares worth of that position might not even fill.....if traded for a week all day each day.

So if you are bullish on a stock like this and would rather risk $1 instead of $3 this makes sense. It also lets you capture almost all of the upside and also having 3x as much. In the end if the trade doesnt work out your option will be worth nothing, if you bought the stock and it went down you would still at least own something.

Double edged sword but you would have almost 3x the potential earnings doing this instead of buying the stock.

I have seen people do this before earnings and fda announcements and either get smoked or kill it.

Jim Reichard

Thanks again. I don't think there will be much movement in this for a few months so I can just buy a little at a time. The only negative to this is if a guy like Boone Pickens, who already has a small position, decides to buy more before the red ink disappears.

aklucsarits

Total (oil company) is buying a 60% stake in Sunpower (solar semiconductor company).

http://www.reuters.com/article/2011/...ersNews&rpc=43

With oil companies all flush with cash and growing profits, and most of the former green-energy darlings trading at 1/5th of their 2008 highs, could this be the start of the next wave of merger mania? Traditional big oil buying out green energy plays?

I nearly forgot that I still have some SPWRA shares left until I looked at my non-retirement portfolio screen and saw it up 40% this morning!

Andrew

therookie

don't suppose somebody could explain this in layperson terms? thanks in advance...

"A single block of 25,000 August 35 calls that traded today is roughly 3 times both the daily total average for WMB and the previous open interest at that strike. The calls went for $1.03 on a penny-wide spread.

Less than two minutes later, the largest block of 825,000 WMB shares was sold for $32.66. The next-largest print was fewer than 24,000 shares and traded for a full $0.10 less than the prints before and after.

So this appears to be yet another situation where the trader is selling stock against long calls in a long volatility position. The average implied volatility for WMB is 28 percent, sitting at 52-week lows and having come down from 45 percent in February."

magician

Someone bought 25,000 call options - giving him the right, but not the obligation - to buy 2,500,000 shares of WMB stock at $35/share (each option being the right to buy 100 shares), and paid a lot more for those options than previous option purchasers had paid.

Someone then sold 825,000 shares of WMB for $32.66/share.

The analyst believes that the person who sold the shares is the same person who bought the options. He opines that this trader expects WMB shares to rise above $35/share before his call options expire (in August), whereupon he will exercise those options, buy 2,500,000 shares at $35/share, sell those shares at the (higher) market price, and make tons of money.

Howzzat?

therookie

much clearer. thanks.