Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (1) | Ignore Thread Prev Thread | Prev | Next | Next Thread
Author: aleax Big gold star, 5000 posts Top Favorite Fools Global Fool Pro Community Winner Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 11  
Subject: IO options Date: 11/27/2010 2:42 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I find IO to be a seriously interesting play -- esp. because it's nicely optionable, with very liquid options for a company that size and very high implied volatility (55% for OTM Dec calls, &c).

I'm seriously thinking of selling Dec 10 ITM puts at a 7 strike (probability of assignment, per the delta, 66%), premium 0.60, to get an entry cost basis of 6.40 for a half-size position (if not assigned, I'd be making 60 dollars per contract in 20 days on a margin requirement of 700 per contract -- not too shabby annualized returns;-); if assigned, then move to writing covered strangles -- then, of course, follow up depending on whether I'm assigned puts and now have a full-size position (probably write covered calls), or calls and I'm out of the stock again (probably write puts again to get back into the half-size position).

Of course, this is mostly an income play based on "milking" the huge implied volatility by selling options -- but (as ALL my options investments ALWAYS do) it of course requires the underpinning of fundamentals (e.g., to reassure me that the huge volatility is not due to a high probability of the firm going bankrupt tomorrow... and that I'm OK with owning the stock if assigned my puts, and with being out of it if assigned my covered calls).

Of course, if the stock just soars to the stars from here, I'll be making "pocket money" (still nice annualized returns tho;-) while you guys, just long the stock, get huge capital gains -- that's OK by me, and I do sincerely hope it happens for your sake... I write options (rarely buy any, except as part of some spread) as a "get rich slow" strategy, not "to make a killing" (the stocks I do hope to make a killing on, I just own or short outright;-).

My "reasoning" here: it does seem the stock, despite the recent pop, is at most fairly valued, if not even still undervalued -- but the implied volatility (and so the amounts of premium you can get by writing options) is definitely through the roof (no doubt thanks to the recent pop, again)... I'm much more confident on the second thesis (implied volatility too high, thus, options overpriced) than on the first one (about the stock), though that one seems OK too. Being definitely bullish on the stock, though (tx to the analysis and my own due diligence after it), I'm particularly happy to write puts, and, later, strangles, to take advantage of that overblown volatility and premiums (for as long as they last;-).

Comments, reflections and counterpoints always welcome of course, esp. ones pointing out where my "thinking" may have gone awry (since fighting one's tendency to "confirmation bias" is absolutely core to being a clear and effective thinker and investor, I always value well-argued disagreement from me, even much more than I value people telling me that I'm right!-).
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (1) | Ignore Thread Prev Thread | Prev | Next | Next Thread

Announcements

Post of the Day:
TMFDeej's CAPS Blog

Activist Investors Unlocking Value at LSB Industries?
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement