woofys
212 posts
msg #32899
- Ignore woofys |
8/20/2004 8:48:15 AM
The stock is (plmo) $37.00 its price 8-18-04. 52w/high $41.54, low $9.53
8-18 PUT price was: o4 nov $30.00 (upywf)=$3.00 time to expirattion, 94 days.
My calculations show stock falling at rate of $4.44 every 16 days.At that rate put will be in-the-money by $1.88 in 32 days.
QUESTION
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woofys
212 posts
msg #32900
- Ignore woofys |
8/20/2004 9:17:31 AM
QUESTION: If I want to be out of this trade in 64 days for it to be profitable,is 30 days (94-64=30 days) giving me enough time at the end? Or, should I buy an option further out, like 1 more month may be?...considering stocks beta? 52W high $41.54, low $9.53
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cegis
235 posts
msg #32903
- Ignore cegis |
8/20/2004 11:08:21 AM
woofys,
If you buy a put w/ strike of $30 for $3, and the current price is $37 for the underlying stock, the stock will have to drop just over 27% ($10/$37) before you BREAK EVEN, assuming you're looking to exercise the put (which it sounds like you're not, but should be looked at any way).
If you're looking to sell the put before expiration, you need to look at the option's delta to figure out how far the stock has to move in order to get your desired move in the option price. You also need to factor in the spread (ask - bid), 'cause you'll (most likely) buy at the ask, and need to sell at the bid. So, if you're looking for $1 profit, with UPYWF's delta of -0.24, and a spread of $0.15, theoretically, PLMO would have to drop to about $32.50 (37 - $1/0.24 - 0.15), or about 12%. This does NOT take commissions into account, which you SHOULD factor in.
I have not analyzed (or followed) PLMO, so I have no idea if a 12% drop in the next 93 days is likey.
HTH,
C
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woofys
212 posts
msg #32993
- Ignore woofys |
8/25/2004 11:32:19 PM
cegis: thank you very much for your insights, very helpfull as always.
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