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The early options are just like LinkedIN.
The stock of Groupon is exactly 24.00.
The July 24 call is 2.30-2.80.
The July 24 put should be the same, but it is 8.40 to 9.10.
Since the shorts can not locate shares to short, they have to buy puts and the CBOE knows that.
Very expensive puts with breakeven down at around $15.00 by July.
Short sellers wait to bet big against Groupon:
A scarce supply had some brokers charging an annual rate of 90 percent to 100 percent last week to borrow Groupon stock, according to two hedge fund managers, one independent trader and one prime broker. They need the stock to go to $0 in a year.
Analysis: Short sellers wait to bet big against Groupon - Yahoo! Finance (http://finance.yahoo.com/news/Analysis-Short-sellers-wait-rb-1913181439.html?x=0&l=1 - broken link)
Bank of America raised their rating to BUY today with a $28 target.
I jumped in with April $18 calls for $1.45.
Will sell weekly calls, slowly, and carefully, for the next 15 weeks to recover cost and make a few dollars.
Let's see, $1.45 / 15 weeks = I need only 10 cents per week to get out even.
I can get 10 cents today for a Jan. 13th $20 call.
If that happened, stock to $20, my April would be worth over $2.00.
Call spread since the stock is not marginable, and the same 1000 shares represented by the 10 calls would have required $17,500 in cash.
And remember Groupon is spelled Group-On and not Grope-On, as in my girl friend.
Bank of America raised their rating to BUY today with a $28 target.
I jumped in with April $18 calls for $1.45.
Will sell weekly calls, slowly, and carefully, for the next 15 weeks to recover cost and make a few dollars.
Let's see, $1.45 / 15 weeks = I need only 10 cents per week to get out even. I can get 10 cents today for a Jan. 13th $20 call.
I could not safely sell any calls on Groupon last week.
Today, the stock went as low as $17.23 before flying up to $18.40, where I sold the "weekly" $19 call for 30 cents.
I only needed 10 cents per week to recover the cost of my April $18 calls.
So, this call spread strategy is a way, on Groupon, or any stock, to participate, without large sums to buy shares.
If Groupon closes below $19 this Friday, I have recovered 21% of my cost for the April $18 calls.
I'll then have 14 more weeks.
If the stock is well above $19 this Friday, well, I'll have to roll the weekly out, if it makes financial sense, or close the spread for a big gain.
Go Groupon
And for option traders, twist your brokers arm to get you approved for spreads.
Spreads are less risky than buying stock, despite the requirements of Etrade and others.
What is more risky?
Investing $1450 on a Groupon April $18 call option or buying 1000 shares for $18,000.00?
Clearly the stock is more risky, so call and put spreads should be a trading tool your broker should consider for you.
If and only if, your account has some funds allotted for risk.
I could not safely sell any calls on Groupon last week.
Today, the stock went as low as $17.23 before flying up to $18.40, where I sold the "weekly" $19 call for 30 cents.
I only needed 10 cents per week to recover the cost of my April $18 calls.
So, this call spread strategy is a way, on Groupon, or any stock, to participate, without large sums to buy shares.
If Groupon closes below $19 this Friday, I have recovered 21% of my cost for the April $18 calls.
I'll then have 14 more weeks.
If the stock is well above $19 this Friday, well, I'll have to roll the weekly out, if it makes financial sense, or close the spread for a big gain.
Go Groupon
And for option traders, twist your brokers arm to get you approved for spreads.
Spreads are less risky than buying stock, despite the requirements of Etrade and others.
What is more risky?
Investing $1450 on a Groupon April $18 call option or buying 1000 shares for $18,000.00?
Clearly the stock is more risky, so call and put spreads should be a trading tool your broker should consider for you.
If and only if, your account has some funds allotted for risk.
GRPN is currently at 17.95. I am considering picking up some shares now and sell covered calls for April $18. Not sure, if I can get these shares for less.
Lets say, I sell covered call for April. Without spreads, I don't see how someone like me participate in weekly options.
Bank of America raised their rating to BUY today with a $28 target.
I jumped in with April $18 calls for $1.45.
Will sell weekly calls, slowly, and carefully, for the next 15 weeks to recover cost and make a few dollars.
Let's see, $1.45 / 15 weeks = I need only 10 cents per week to get out even.
I can get 10 cents today for a Jan. 13th $20 call.
If that happened, stock to $20, my April would be worth over $2.00.
Call spread since the stock is not marginable, and the same 1000 shares represented by the 10 calls would have required $17,500 in cash.
And remember Groupon is spelled Group-On and not Grope-On, as in my girl friend.
GRPN is currently at 17.95. I am considering picking up some shares now and sell covered calls for April $18. Not sure, if I can get these shares for less.
Lets say, I sell covered call for April. Without spreads, I don't see how someone like me participate in weekly options.
You can sell the "weekly" $19 call for 25 cents right this minute.
Maybe 27 cents.
Yes you can get $1.80 on an April $18 call, but if you use weekly options you have 15 weeks.
$1.80 / 15 = 12 cents per week, is all you need to get for, any weekly calls you sell.
The stock is $18.34.
If you buy it at $18.34 and sell the weekly $19 call for 25 cents, your profit potential by this Friday is 25 cents + 66 cents = 91 cents in 1 week.
If you did buy at $18.34 and sold an April for $1.80 you are losing 34 cents of that, to intrinsic value.
You'll have your funds tied up for 15 weeks trying to make $1.56 per share.
When you can make about 20-25 cents each week by selling weekly options. If you can get 25 cents per week, that is $3.75 by April expiration versus the April $18 calls yielding you only $1.56 per share.
Do you want $1.56 per share by April 20th? Or 91 cents per share by this Friday?
Last edited by howard555; 01-09-2012 at 01:48 PM..
I am on my computer off and on all day managing my investments.
It only takes a click of a mouse, to sell the weekly $19 call for 30 cents.
So, no time is involved.
When I used the term "even" I meant, if the stock goes down, I need to sell covered calls each week, and get about 10 cents per contract per week, to get my cost back for the April $18.00 calls I bought.
Worst case, if the stock tanks even more,
(it was $21 last week on an analyst upgrade with a $28 target price)
then buying the April $18 call was a mistake.
To re-cover my cost, I'd sell weekly or bi-weekly options to re-cover as much of my cost back, as possible, if not profits.
Best case, since I sold the Jan. 13th $19.00 call is the stock parks it's voilatile butt at $19.85 this Friday at 4pm.
I am then set up nicely to sell a $19 or $20 calls for next week.
No way. The business model can be duplicated too easily.
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