Dipping my other toe in the water (Corning)

[DoraM]

Purchased 20 Jan 2013 $15 calls of Corning (GLW) for $3.65 today.

Amazing the values that are still on the supposed bubble market.

Exit point is sometime this year at $5 a call.

 

[MasterBlaster]

So just to be absolutely clear you bought 20 lots of 100 - $15 Jan-2013 GLW calls at $3.65 per call.

And you expect to sell them at $5.00 per call for a profilt of ($5.00 - $3.65) X 100 X 20 = $2700 less commisions and foregone interest on the options. Is that correct ?

Would you care to go into why you thought this was a good buy ?

 

[DoraM]

So just to be absolutely clear you bought 20 lots of 100 - $15 Jan-2013 GLW calls at $3.65 per call.

And you expect to sell them at $5.00 per call for a profilt of ($5.00 - $3.65) X 100 X 20 = $2700 less commisions and foregone interest on the options. Is that correct ?

Would you care to go into why you thought this was a good buy ?

Yes, that is right, 2000 options at 3.65.

GLW cash on hand $6.3B, debt 2.3B, market cap 26.5B, book value $13
Foward PE 7.54
Makes glass for lcd, smartphone screens, laptops, fiberoptics, medical equipment

Wait, why did I only buy 20 contracts?

 

[Coolius]

DoraM, the calls do seem to have a good potential to hit $5 if there is another run to the 14K level this year.

I noticed that the 2 year low on GLW is about $14.5.

In my strategy, I would be looking to sell Nov 11 calls at strike of $14, for about 40 cents. If tomorrow's market is down, this could be reached, and I will open my position.

If by some chance I get assigned, I would be holding GLW at a P/E of about 6.8, which would be a pretty good position going forward into a presidential election year.

 

[harley]

You only have two toes?

 

[kumquat]

My only comment is that usually the sellers of options make the money.

 

[DoraM]

DoraM, the calls do seem to have a good potential to hit $5 if there is another run to the 14K level this year.

I noticed that the 2 year low on GLW is about $14.5.

In my strategy, I would be looking to sell Nov 11 calls at strike of $14, for about 40 cents. If tomorrow's market is down, this could be reached, and I will open my position.

If by some chance I get assigned, I would be holding GLW at a P/E of about 6.8, which would be a pretty good position going forward into a presidential election year.

I assume you mean you would sell Nov 11 cash secured puts. A reasonable strategy and one I use in our bigger accounts.

 

[DoraM]

My only comment is that usually the sellers of options make the money.

I have heard this a lot and don't know if it is true or if the statistics are being misused. I have heard things like 80% of options expire worthless, but are these deep ITM LEAPS or are they someone buying weekly OTM calls looking to score a 10 bagger in a few days? I could see 99% of weekly options expiring worthless and 20% of ITM LEAPS expiring worthless might average to something like 80% of all options expiring worthless.

Also look at it like this: Sellers of options take on vastly more risk vs reward than buyers of options, so it does seem fair that a larger percentage of their trades would go positive. Example: You owned EK in 2008 at $15 a share basis and decided to write a 6 month covered call at $16 strike for $1 ( a typical premium). Fast foward 6 months and you are down at least $9 per share while the option buyer has only lost his $1.

Anyway, I have 80 free trades left, and options provide more leverage in this small account than stock. They also do not take 3 days to settle, allowing significantly less down time in the account.

 

[DoraM]

You only have two toes?

Well, my husband does sometimes call me a sloth.

 

[brewer12345]

I trade options from time to time. I usually only buy when I think I have a realistic chance to at least double my money and I usually buy the longest tenor I can find. But lets face it: this is speculation at best, gambling at worst. Keep it small in size and only use it for your very best ideas.

 

[DoraM]

I trade options from time to time. I usually only buy when I think I have a realistic chance to at least double my money and I usually buy the longest tenor I can find. But lets face it: this is speculation at best, gambling at worst. Keep it small in size and only use it for your very best ideas.

This is very good advice and I do follow the same thoughts. I buy almost exclusively in the money LEAPS, but I don't always hold for a double, being satisfied with a 30% to 40% gain if it happens early enough in the holding period.

A safer way to do this if you want to really hold the entire length and try for at least a double is to sell OTM calls against the ITM options you buy. Sure, you limit yourself to a max gain of maybe 150% or so, but you recover most if not all of the time premium you paid for the ITM options and significantly reduce the break even price. I have looked into doing this but am still studying it.

 

[Coolius]

I assume you mean you would sell Nov 11 cash secured puts. A reasonable strategy and one I use in our bigger accounts.

Yes, you are absolutely correct - my bad.

I meant to sell the Nov 11 puts , not calls.

How does one edit previous posts? I could not find the way to do it.

 

[DoraM]

Over the past few days I have changed around my investments a little because of the debt crisis.

I am now long Apple, Microsoft and Corning via option spreads.

Apple is doing seriously well...the short leg of my spread is in the money by $20, so there is a good chance I get full value for that one (114% profit)

Microsoft is doing seriously well...the short leg of that spread is in the money by $2 (Jan 2012 $24 $26) and the spread could earn 105% profit

Corning is just floating along, but I have changed it to a calendar spread, buying Jan 2013 $12.50 calls and selling Feb 2012 $19 calls for a net debit of $4.50. Has potential to be worth 44% or a bit more.

Even though Apple and Microsoft are skyrocketing, I still think the lowest risk play was/is Corning. The $12.50 calls are just so deep in the money and have 18 months left, and the stock is near a 52 week low with strong expected 2012 earnings.

It was nice today to log into that account and see it up $7800 versus logging into my 401K with total stock market index and seeing it down