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[Weekend Summary]
Dear Member,
A pleasant week. When EBAY turned back at a resistance, I decided to create a bullish call spread by selling the Jan '07 50 calls for $5 a share. As you know, I already owned the Jan '07 40 calls so I now have a 40/50 spread. I created the spread in order to bring in some cash and to reduce my overall risk in the position. My current net cost in the positions is about $6.80 and that is my total risk right now (including my commissions to date). If I do nothing and the stock is above 50 at expiration, the spread would be worth $10 and I would make about $3.20 a share. The liklihood is that I will make adjustments over time depending on the rise and fall of the stock.
The Biotech Hldrs (BBH) retreated to support and then bounced again. The trade still looks ok to me and, of course, I always have the option of reducing risk and bringing in income be selling some other calls against my long LEAPS call position. Right now, I'm standing pat.
CHINA made a nice run and was up 8.7% on the day. The move was accompanied by heavy volume and that is often bullish.
I have straddles on Cardinal Health (CAH) and Morgan Stanley (MWD). Not much is happening on those, but that is not unusual for a straddle. It is not unusual for them to take some time to develop. It looks like CAH may have added some volatility and that is good for me. Straddles can make money with a spike in volatility or/and a relatively strong move in either direction. One of the things I like about straddles is that while risk is limited, potential profit is theoretically unlimited.
The trader can profit by a move in either direction if the move is strong enough. The downside of straddles is that many straddles can result in losses, but if one exits well before expiration if the straddle isn't doing anything, the losses may be kept relatively small. When wins do occur, they can be quite large.
SPY is hovering below 129 and I am short the Jan 129 calls and am long the Jan '07 120 calls. Monday is a trading holiday so three days of time value will evaporate on the Jan 129's if I choose to buy them back. I definitely do not want to be called out of those 129's and will buy them back. Right now, that Jan 129 leg is losing 10 cents while the Jan '07 120 leg is up 80 cents a share so, overall, the position is currently profitable and looking good to me.
Micron (MU) is taking a breather at resistance and there is nothing for me to do. I am satisfied with the position.
The "home run" of the moment is the put position I opened yesterday on Whole Foods Market Inc. (WFMI). I bought the May 80 puts yesterday for $7.30. Today, the stock dropped $3.13 and the closing bid on my options was $9 so, on paper, the trade is up $1.70 a share or 23% in a single day!
Today I checked my last year's Market FN trades. 63% of the trades closed in 2005 were winners and, in my view, that is a pretty good number for options trading. Those trades were in place an average of 20 days each and delivered a 17.8% return on risk in those 20 days.
Have a great weekend.
Bill
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