Price action and stocks vs options

[Haggerston]

Up to you how you want to put up positions but my opinion is that long calls is a bad trade. If the stock goes straight up at .25-50 cents a day, it will crush implied volatility, so you will be losing money on both theta decay and a loss on the vol, a double whammy as your vega drops significantly. My go to trade on this has been selling otm front month calls on price spikes, and then buying the calls back as the price slides back down. With a long stock short call position, I am 100% delta hedged and am shorting vol and collecting premium. But people on this board seems to hate this trade.

I like your trade.

As for me I bought a lot of calls at various times then the stock was getting pounded and the premium was relatively  inexpensive.It wasn't a precise set up but more of an opportunity to pick up cheap options as i thought the price would go back up. Now all my calls have gains so i may take off some risks and either buy some cheaper calls, go furhter out or go more into stocks. Will have a think this weekend.

[tacitusk]

I took a longer term approach and loaded up on Jan 2015 $20 calls @ 1.25 ea.

[kevinh]

Up to you how you want to put up positions but my opinion is that long calls is a bad trade. If the stock goes straight up at .25-50 cents a day, it will crush implied volatility, so you will be losing money on both theta decay and a loss on the vol, a double whammy as your vega drops significantly. My go to trade on this has been selling otm front month calls on price spikes, and then buying the calls back as the price slides back down. With a long stock short call position, I am 100% delta hedged and am shorting vol and collecting premium. But people on this board seems to hate this trade.

I like your trade.

As for me I bought a lot of calls at various times then the stock was getting pounded and the premium was relatively  inexpensive.It wasn't a precise set up but more of an opportunity to pick up cheap options as i thought the price would go back up. Now all my calls have gains so i may take off some risks and either buy some cheaper calls, go furhter out or go more into stocks. Will have a think this weekend.

The trade I did was long shares and then sold Nov 16 calls at .4, bought them back at .1. I then resold them at .7 and they expired worthless going into Nov expirations.

I just don't like the straight out long call trade. Everyone knows that volatility decreases on slow up moves so to long far out of the money calls (long skew), you are betting on three things happening at once:

1. Stock goes up

2. Stock goes past strike before expiration

3. Stock goes past strike on a violent move

It's a fun trade when it works out and you make 800%, but a majority of the time, you will be wrong and lose all of the invested capital. If you want to take a gamble, put in a small amount of money like you are buying a lottery; I certainly wouldn't put any real amount of money on the trade.

[kevinh]

I took a longer term approach and loaded up on Jan 2015 $20 calls @ 1.25 ea.

You must have gotten them back when NQ was sub 10. If so, that's awesome. You are already up 300%.

[tacitusk]

I took a longer term approach and loaded up on Jan 2015 $20 calls @ 1.25 ea.

You must have gotten them back when NQ was sub 10. If so, that's awesome. You are already up 300%.

I lucked out and got them four minutes away from the all time low, although the prices of the options touched there again on the second dip.

[admin]

The trade I did was long shares and then sold Nov 16 calls at .4, bought them back at .1. I then resold them at .7 and they expired worthless going into Nov expirations.

I just don't like the straight out long call trade. Everyone knows that volatility decreases on slow up moves so to long far out of the money calls (long skew), you are betting on three things happening at once:

1. Stock goes up

2. Stock goes past strike before expiration

3. Stock goes past strike on a violent move

It's a fun trade when it works out and you make 800%, but a majority of the time, you will be wrong and lose all of the invested capital. If you want to take a gamble, put in a small amount of money like you are buying a lottery; I certainly wouldn't put any real amount of money on the trade.

You're entirely right on all of this, but I think the ones who are buying OTM calls are betting on the MW episode being a blip, like it was with the last MW targets. Add to that the strong likelihood that MW will grow significantly and enter into new deals before March, and these OTM calls could still be big winners, especially when bought in the midst of the MW sell-off.

[roxron9]

The trade I did was long shares and then sold Nov 16 calls at .4, bought them back at .1. I then resold them at .7 and they expired worthless going into Nov expirations.

I just don't like the straight out long call trade. Everyone knows that volatility decreases on slow up moves so to long far out of the money calls (long skew), you are betting on three things happening at once:

1. Stock goes up

2. Stock goes past strike before expiration

3. Stock goes past strike on a violent move

It's a fun trade when it works out and you make 800%, but a majority of the time, you will be wrong and lose all of the invested capital. If you want to take a gamble, put in a small amount of money like you are buying a lottery; I certainly wouldn't put any real amount of money on the trade.

You're entirely right on all of this, but I think the ones who are buying OTM calls are betting on the MW episode being a blip, like it was with the last MW targets. Add to that the strong likelihood that MW will grow significantly and enter into new deals before March, and these OTM calls could still be big winners, especially when bought in the midst of the MW sell-off.

In agreement on that admin, also I think that most of the companies targeted by MW were no where near the hyper growth stage NQ is at ?

The January 2015 $30 calls were trading at IV of around 80 when I got them couple of weeks ago vs all the near terms at lesser strike at or above 150-200 that time. I have done my research and have tracked the company for little over 24 months now, thought buying options to be  the best leverage I could have got instead of buying the stock.Yes, I can still loose all my capital on options, got burned on my Dec 2013 deep in the money call options, but I think Q3 was the inflection point for NQ and 2014 will be a big year. MW was a blessing, as that clears out a lot of issues and markets the company extremely well.

Some might call it gambol, I will call it backing my conviction. No fun in investing for me, if I can't back my conviction and work.

PS : No offense to Kevinh, totally respect his point of view and what he is doing with the options. I used the word "gambol" as this is what lot of people told me when I did the trade.

[roxron9]

Given we are on the topic:

Can someone help me understand why there is a huge open interest in Jan 2015 $27.5 calls, around 4000 ?

Just because someone thought that if the company goes private they will be at around that price ?

[kevinh]

Open interest = # of contracts people have written. It's like shares outstanding

[roxron9]

Open interest = # of contracts people have written. It's like shares outstanding

Thanks. Yes I understand that. Just wondering why so much interest in $27.5 not $30 or $25.