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I'm going to hang it up early today. It's been another great week. I'm getting ready to leave for a week-long trip with my family. I'll probably manage to do one post a day during my vacation. Until then, I leave you with these charts, which I consider an interesting fount of ideas. Thank you, and enjoy a pleasant weekend!
See you on Monday……….
I am religious about stops. But sometimes they really bite me in the butt. That doesn't mean I'll ever stop using them. But every now and then, you get a story like this.
As regular readers know, I suggested shorting (or buying puts on) Overstock (OSTK). I set a stop above 28.50, which was the highest point it reached in 2008. Yesterday, it moved past this level (peaking at 29.59), so naturally I was taken out of my position. That's how it works.
Today, the stock is getting blown to pieces, losing nearly 40% of its value. I didn't make a mistake setting the stop. This is just one of those fish that got away. It's a shame, but it's worth having that protection.
This morning's 43 dollar drop in GOOG's price is an object lesson in how relatively volatile stocks have expensive premiums. The July put holders (and with today as expiration, that was a very risky bet!) were rewarded by the stock's drop, true:
But look how much more severely the call holders were punished.
There's nothing shocking here, of course. Option buyers are buying a premium based on the uncertainty of the future. Once that uncertainty is past, those premiums collapse, and only the greatly improved intrinsic value (that is, GOOG's $43 plunge) shores things up for the put holders.
I see it's dropped another $5 just in the couple of minutes it took me to type this. What a day………
