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LUMINENT MTG CAP INC Message Board

  • njp88 njp88 Jan 13, 2008 2:53 AM Flag

    Call Options

    Lot written about those 16,000 outstanding contracts for Jan 2.50. Just for perspective I will tell you about mine. I am a long, and intend to hold this to $3/share, my estimate of the book value after the mark to market losses are unwound next year.

    I wrote 100 of those 16,000 contracts in December, and in hindsight should have written more. In with a cost basis about $1.20, I decided it was worth $0.15 to give someone the right to buy me out at $2.50, double the price a month later. Maybe I lose some upside, but my goal was about using this as an opportunity to just further reduce my basis.

    I do not plan to immediately dump those 10,000 shares the moment they are "unlocked". I plan to sell them when they get to what I consider a fair value. If I were really nervous, I wouldn't be too cheap to buy the calls back now for a nickel so I could unwind immediately. No sensible investor would just sit and wait to save a nickel and then dump.

    Interesting to note that at the time I wrote those calls in mid december open interest was about 8,500 contracts. The doubling of open interest in the next three weeks represents some big optimism at the time.

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