Return potential = 4% in 9 days Risk is a loss starting at $15.38.
With takeover bids surrounding YHOO, there is risk that no deal gets done by year end and a drop down to the $14 area where the stock was prior to renewed t/o talk.
YHOO is a reasonable value in the sector so buying the stock is comfortable for me with or without a deal. For now, it makes sense to make some extra income from the speculators who are paying relatively high prices for YHOO call options in the hopes of a higher deal.
By: Technical Tim, 10:16AM EST, Mon Dec 5, 2011
Comments
timwest
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YHOO expired under the breakeven price of $15.38. I would recommend selling January calls with a $16 strike price again at the market price on Monday. The closed Friday at $0.51. I normally would recommend waiting to sell call options once the price rebounded closer to the $16 level, but I believe this is a reasonable return of 3% for giving away returns above $16 for one month. If you have cash to buy more shares of YHOO, I would recommend buying more shares here ($14.96 close) and selling the $15-strike January options for a stand-still return of more than 5% (0.83/option). I believe the downside risk is $1 from here.
timwest
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This strategy is working wonderfully here. Profits across the board on both positions now.
As a reminder: Long YHOO at a net cost of $15.38, short the Jan $16 calls for $0.51. 2nd Position: Long YHOO at $14.96 and short the Jan 15 calls for $0.83. Breakeven on the whole trade is $14.55 (approx). The annualized return if YHOO stays above $15 by Jan expiration is a big number. Does anyone want me to post a spreadsheet of these trades?
Algokid
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Great Job Tim, if it's not too much trouble, we would like to the the spreadsheet. thx :)
charttrader
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Please post it. I'd really like to analyze it in details.
Matt_Hoffen
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what technical tools/studies do you use for your analisys?
timwest
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I look at price bars to define strength of the trend, define support and resistance, volume, price/time clusters (market profile), and then I try to figure out what everyone else is thinking and how they are positioned based on how they are looking at the chart. I use relative strength to the market index and as many sentiment indicators, especially VIX. I also try to find news and reactions to news to define key points in a stock or in the market.