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  • ashyman29 ashyman29 Mar 22, 2005 5:22 PM Flag

    any option traders can clue me in here?

    looking in January 2007 calls for strike price of $20 looks good to me. i think ELAN will be over that then, trading at .85 cents it looks like. if i were to buy 10 contracts how much would it cost me and how much roughly would it be worth if it came in? if it is worthless i lose everything, but, can i be liable for anymore than what i put up? i don't short. but, can i lose more than i put up in options?

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    • When ELN was a constant fixture under $8 the vol range was roughly 60-85 w spikes into the 120's.Lower priced stocks generally trade at a higher vol,especially ones with a\lot of uncertainty surrounding them(eg.ELN)IMHO

    • Yes, the volatility has jumped to about 100% due to the step function. Previously it was about 40%. Judgement is needed to select a forward going volatility, I think 50% to 60% a fair estimate.
      You can get the volatility from Big Charts.

    • no. you can't lose any more than what you spend. That stated, I disagree with the previous poster about his intrinsic value model and b.s. program.

      1. look at the spread between the bid and ask of that call options...and consider just putting in a bid price and not pay the ask price.

      2. who is to say that $900 is not a lot of money on 10 contracts. Remember though you have to factor in not only the cost of those contracts but the transaction costs at your brokerage. On 10 contracts...may not be worth it.

      3. Consider: eln the stock at today's price is like buying LEAPS now anyway

      4. calculate total trading costs, spread costs, and then price that into that $20 Call and that is the price of the stock for it to be in the money. On 10 contracts? hmmm...i'd stick with just spending that 900 bucks on the stock itself and holding it to 2007.

      yup.

      -Jedi

      • 2 Replies to numina13
      • That stated, I disagree with the previous poster about his intrinsic value model and b.s. program.
        ********************************************
        Sorry, but it is not my program. The originators were Black and Scholes, renowned mathematicians who won the Nobel prize for their development of equations to determine the value of an option. I almost always find the option value, as determined by Black and Scholes, to be between the bid and asked price. Furthermore, whenever I find an out of range value, I take advantage of it, and on average, am way ahead.

      • Your conclusion may be right, but you're missing the leverage. Say you're someone who thinks Elan will go back to 25 in the next 1 1/2 years. The 2007 20 would go .8 to maybe 6 (premium depending on when it did it), or 600-700% gain, while the stock goes 7.25 - 25, or 250-300% gain. Of course, it's not likely to do that. I earlier said Elan's premiums were low (actually, meaning compared to a few days ago), but looking again, I wonder. The October 10s are about 1.4. If you sell a covered call, you get 1.4 (or 1.4/7 or almost 20% return if not called. And if called, return would be like 2.75+1.4 or 4.2/7.25 or maybe 55-60% in a little over 6 months, or over 100% annualized. Not bad. If you buy the stock for that purpose, you cut your cost to 5.8, with no angst till it gets near 10.

    • looking in January 2007 calls for strike price of $20 looks good to me. i think ELAN will be over that then, trading at .85 cents it looks like. if i were to buy 10 contracts how much would it cost me and how much roughly would it be worth if it came in? if it is worthless i lose everything, but, can i be liable for anymore than what i put up? i don't short. but, can i lose more than i put up in options?
      *******************************************
      TWO ANSWERS
      1. From questions you ask it is obvious you are not knowledgeable about option trading and are not ready to make any transactions.
      2. Ask price is $.90. ten contracts cost $900.
      If ELN price is under 20 by expiration date, you lose entire $900, you cannot lose any more. Using a program to evaluate value of options, the fair value of that option is $0.43, so it is way overpriced at $0.90.

    • Buying call options are for suckers. At least 90% of options buyers lose money. Welcome to the club if you want to lose 100% of your money. There's a sucker born every mintue.

    • 10 contracts at 85 cents = $850 why? Each contract = 100 shares so 10 x 100 x.85= $850 The most you can lose on this is $850 plus your trade cost. How much would it be worth of elan came in? Ok say next week elan went to 25 your 2007 20's would be worth $25- $20 (strike price)= $5 plus the time premium. For an example of time premium look at how much a 2007 $5 strike call option is worth now. If elan would be at $20 in jan. 2006 you would get less time premium because of the time factor. Rule of thumb the closer to expiration the less an in the $ call is worth. Look at the options going forward you can see how the further out they are in time the more they cost.

    • You wanna double your money by 1/6 and not risk zilch if the stock just stays at $7.25?

      The secret is not to be the gambler, the secret is to be the croupier in the game--he collects on every pot no matter what.

      Buy on margin at $7.26for $3.63 of your money, consisting of $2.50 generated by the sale of a January $7.50 call, and $1.12 of your out of pocket money.

      You'll get $2.50 back for every $1.12 you put up. That's a triple, minus margin costs and sale costs.

      And the stock never has to go up a penny.

      You gonna invest at $7.25 and hope it hits $22.50? I'd rather buy four times as many shares and do it this way, for the stock never has to go above what you paid for it.

      It can even go to $6.25, and you STILL score a double.

    • why dont you buy next month near-the-money call options.. try buy april 7.5 call at 0.4 $400 for 10 contacts good bet for 3 weeks however must take profit if any, then try again for next month and so on. dont buy long-range far-out-of-money leaps, no way to earn anything

    • no it is very easy to loose 100% of your money as long as you are not shorting the options.

      You may want to join my trading forum where I have posted some interesting option strategies for ELN.

      www.hevolve.com/mb

    • 10 contracts will cost you:
      .90*100*10=$900
      At X will be worth Y
      $20, 0
      $21, 1000 x 1 = 1000
      $22, ........ = 2000
      $30, ........ = 10000
      I think you'd want to be buying more like 1000 contracts though. To far out of the money on todays price to be considered an investment, merely a gamble.

      I make Jan '07 2.50s at 5.60. Let's say two contracts for $1120 (5.60*100*2):
      $20, 200 * 17.50 = 3500
      $21, 200 * 18.50 = 3700
      $30, 200 * 27.50 = 5500

      Okay, not as much leverage, but kicks in for you **A LOT** earlier, and you'd only have to put down ~ $2000 v $1000 to get a similar result with far lower risk.

      Someone may need to recheck the numbers because I'm whacked and couldn't be bothered.

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