I was looking at my CMC option position just before lunch and decided to place a stop order to secure some profits as it was up to $6.30. I was going to set $6 for today.
By accident, and I have VERY seldom done this, I sold the option at a limit of $6 as I forgot to select the STOP box.
The only good side is that at least I got the $6.30 price so my profit was $1.20 per share. I had been considering selling the option as the stock has hit a recent resistance level at the $18 to $18.50 zone...it was as high as $18.65 and I suspect that it may have more room to move...another $1 I had aimed for anyway.
Seeing as I dumped my CAH put option side of the straddle this morning for a loss, this one covers that loss and change. The call for CAH was increasing at a much loser rate than the put was decreasing... the discrepancy was due to the spin off and symbol changes. I may look for another long straddle for next week, or at least after this run up has run it's course.
I had considered dumping both sides of the straddle and starting with a different call for CAH fully expecting the price of the stock to rise following the change, I decided to save the extra commission and just hold the call that I already had.
Having said that, I would have bought calls that were closer to the strike price, or even the first call that was out of the money. These calls are far cheaper which leads to another thought about ATM call trades.
Jeff.
Questrade, My direct access discount broker.
Showing posts with label CAH. Show all posts
Showing posts with label CAH. Show all posts
Wednesday, September 9, 2009
Wednesday, September 2, 2009
Long Straddle, Spinoffs and symbol changes
Well, I didn't expect anything major to be happening with CAH. It has been spun into KCF now. Seeing as I don't pay any attention to news or much about the stocks that I play with, whether options or stocks, I guess I can get blindsided the odd time.
My straddle was based on chart activity and it looked ready to head for a drop, as I said before I would have just played it short as a stock trade or just bought a put...but I wanted to play.
Yesterday they switched symbols on the NYSE while spinning off to KCF (Care Freedom I think). I would have received, had I shares in CAH, a 50% transfer, I would only get 1 share of KCF for every 2 shares of CAH. That would have sucked as they closed last night at around $35 and opened under $25 today.
That was the ride though, all I saw was the share price drop from $35 to $25... I waited for the options to be priced and was expecting my put to balloon by $10 per share and my call to lose $2 per share. I was surprised to see that the option chain symbols had changed. This means that I could not sell my options until they are transferred to the new symbols, which happened today.
Interestingly the options, as they only give me control of 100 shares, are not affected by the share exchange rate. Seeing as I was on both sides of the trade and the relationship between option price and stock price is not linear, I really was not concerned about this, once I realized what was going on.
There is an advantage to playing both sides simultaneously.
While the option pair was not the greatest I learned a few things and had some others reinforced, like that options can provide protection from unforeseen events. Just thought I would share.
The new options cost was changed though.
The call was at $2.85 it is now $2.4873 and the put was $2.50 and is now $2.8743
The old difference was 35 cents and the new difference is 38.7 cents
Another change was the delta, seeing as the strike price of the options is still $35 and the new stock price is $25, the price difference remained similar but the Delta is now 0.365 and 1.00 for the call and put respectively compared to the original 0.527 and 0.46. This makes the option pair skewed in my favour if the price of the stock continues to drop.
I have a feeling that the price is not going to do a whole lot for a while and I might lean toward it going up instead of down...which might not work in my favour unless it REALLY goes up a lot, like $10 or more. I will hold this to see what happens though.
My straddle was based on chart activity and it looked ready to head for a drop, as I said before I would have just played it short as a stock trade or just bought a put...but I wanted to play.
Yesterday they switched symbols on the NYSE while spinning off to KCF (Care Freedom I think). I would have received, had I shares in CAH, a 50% transfer, I would only get 1 share of KCF for every 2 shares of CAH. That would have sucked as they closed last night at around $35 and opened under $25 today.
That was the ride though, all I saw was the share price drop from $35 to $25... I waited for the options to be priced and was expecting my put to balloon by $10 per share and my call to lose $2 per share. I was surprised to see that the option chain symbols had changed. This means that I could not sell my options until they are transferred to the new symbols, which happened today.
Interestingly the options, as they only give me control of 100 shares, are not affected by the share exchange rate. Seeing as I was on both sides of the trade and the relationship between option price and stock price is not linear, I really was not concerned about this, once I realized what was going on.
There is an advantage to playing both sides simultaneously.
While the option pair was not the greatest I learned a few things and had some others reinforced, like that options can provide protection from unforeseen events. Just thought I would share.
The new options cost was changed though.
The call was at $2.85 it is now $2.4873 and the put was $2.50 and is now $2.8743
The old difference was 35 cents and the new difference is 38.7 cents
Another change was the delta, seeing as the strike price of the options is still $35 and the new stock price is $25, the price difference remained similar but the Delta is now 0.365 and 1.00 for the call and put respectively compared to the original 0.527 and 0.46. This makes the option pair skewed in my favour if the price of the stock continues to drop.
I have a feeling that the price is not going to do a whole lot for a while and I might lean toward it going up instead of down...which might not work in my favour unless it REALLY goes up a lot, like $10 or more. I will hold this to see what happens though.
Friday, August 21, 2009
CAH and the Long Straddle
Well, I couldn't help myself...I had to get one of these in play.
Now CAH may not have been my first choice had I enough time to really do some research but it fits the criteria close enough that I shouldn't lose my shirt on the endeavour.
Here is the chart for CAH, I tacked on the indicators that may be of value in checking these out.
RSI, on top. Any value over 70 is sort of an over bought indicator...just by it's nature as relative strength for this stock has not been above 70 in six months...let alone spent any time above 70.
ATR, bottom is the Average True range over the last five days. It is over 1. This only indicates that the stock's price may move, on average, over $1 per day in the last five days. Unlike the RSI indicator this one does spend some appreciable amount of time over $1 leading me consider that a few $1 plus days COULD be in any direction.
Now CAH may not have been my first choice had I enough time to really do some research but it fits the criteria close enough that I shouldn't lose my shirt on the endeavour.
Here is the chart for CAH, I tacked on the indicators that may be of value in checking these out.
RSI, on top. Any value over 70 is sort of an over bought indicator...just by it's nature as relative strength for this stock has not been above 70 in six months...let alone spent any time above 70.
ATR, bottom is the Average True range over the last five days. It is over 1. This only indicates that the stock's price may move, on average, over $1 per day in the last five days. Unlike the RSI indicator this one does spend some appreciable amount of time over $1 leading me consider that a few $1 plus days COULD be in any direction.
According to my P&F charting this stock would be shortable (buy puts) at anything over $35... so I use $35.50 as the trigger. I figured, rather than just buying a put I would try the straddle and see how it works out...see if my theory matches reality.
I bought the Jan 35 call and Jan 35 put at the same time. Unfortunately both are sitting 10 cents down as I did not get great prices with my limit orders. Ideally, once I decided on a straddle I should set limit orders in the AM and adjust them over the course of the day to get a lower put and option price as the stock price does it's normal gyrations. The 20 cent spread may become negligible over the long run anyway.
Total capital invested $535. I would have preferred to also have the stock price closer to the strike price of both options, CAH was 60 cents ITM for the call which makes it 60 cents OTM for the put. I will place a stop order at half of the value now for each option. This will get me out of the trade for a $250 or so loss, worst case should the price do nothing but hover, which I doubt, or it gets me out of the losing option while the winner runs increasing my profits on that side of the trade.
While I took the time to write this my call is now even (10 cent gain from open) and the put is still at -10 cents. The stock price has only gone up 9 cents or so. This shows the appreciation of the call as the price may be expected to rise, implied volatility at work here increasing the value of the extrinsic portion of the option...one more factor in creating the price movement non-linearity.
Lets see where this takes me.
Jeff.
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