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Prosperity Bancshares Inc. Message Board

  • bearatologist bearatologist Sep 10, 1998 11:58 AM Flag

    not enough buyers at the open today...

    hmmm...

    how are those call options doing, gwy?

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    • Just buying calls, so far, on PB.

      But
      bear's strategy (which is actually mildly bullish, so
      maybe (s)he misnames himself/herself) is not a bad one.
      I'd tend toward shorter-term puts, though (1-2 months
      out). But watch those commission costs...they tend to
      add up fast.

      I WAS writing some puts on some
      beaten up techs, but they've rebounded quite a bit, so
      the window of opportunity may have passed. Indeed, it
      may be passing on PB, too, given the activity I'm
      seeing today. But with the volatility we've been seeing,
      there's a good chance we'll see another downturn in the
      near future.

      There may be some recognition
      that there was a bit of an over-reaction to some of
      the bad international news, but we may now be seeing
      an over-reaction to hopes for a U.S. (or even a
      concerted global) interest rate cut. We're not out of the
      woods, yet, and more volatility is to be expected, given
      continued international (and now domestic) turmoil. But
      we'll see...

      BTW, I assume you're comfortable
      with puts, but, if not, be careful with them, it's
      deceptively easy to get carried away and get caught in a
      margin situation. So make sure you'd be willing to
      accept margin in a worst-case scenario (say another 50%
      drop) or better, make sure you've got enough cash
      available to cover the assignment. I prefer to have the
      cash available and think of the puts as a GTC order,
      for which someone is paying me a premium. For me,
      it's psychologically important to sell puts only on
      positions I'd be willing to hold long at that entry price.
      But then you get to the logical question, if you're
      truly bullish, why limit your upside to a put premium,
      while accepting all the downside risk?

      FWIW
      (i.e., ~$.02)
      j

    • Have you been writing any puts on PB recently? or are you primarily buying calls?

    • Since you sound semi-serious, some semi-serious
      input:

      If you're truly interested in that position, and are
      comfortable with the downside risk over that time period,
      just sell the Apr99 12.5 puts. You'll tie up less cash
      and/or avoid interest charges and extra commission
      charges.

      If you're buying the stock and selling the covered
      call at the same time, you've created a synthetic put.
      Unless there is a dislocation in pricing (which
      arbitragers will usually fix well before you or I spot it),
      you usually come out better just selling the put,
      itself. You avoid the second commission. If you're
      ultimately bullish, the put should be more likely to avoid
      the assignment fees, as well.

      More
      importantly, the put ties up less of your cash and/or avoids
      an interest charge. Always do the math, but the
      opportunity cost or interest charges usually outweigh the
      higher premium the calls generate.

      Usually
      that's enough to justify the put route, but if you
      explore the grey area the put looks even more
      advantageous - since the cash requirements are lower, the
      percentage return is actually a bit higher. Granted that's a
      bit misleading, since you're effectively committing
      to make use of margin in a worst-case scenario, and
      you're approaching the slippery slope. But the
      conservative approach (keeping all the funds you'd need to
      purchase the stock in cash) still allows you to earn a
      nominal return on some of that cash for the option
      period.

      FWIW, the options prices are now more accurately
      representing potential volatility (including upside
      volatility) for the stock, IMHO. Previously, the prices
      appeared artificially cheap ("fear", as you suggested).


      In general, since the stock has loudly proclaimed a
      return to significant volatility and can be expected to
      continue this way for the mid-term, options will be
      pricier. The long period of trading in the 30-40 range,
      with relatively low options premiums may appear to be
      an anomoly when one examines the chart over the very
      long term.

      Another gratuitous comment, if
      you're seriously considering a synthetic put: I prefer
      to maximize the per-month time value of the options
      I'm selling and to minimize the per-month time value
      of the options I'm buying, so I buy longer-term
      options (6 months+) and sell shorter-term options (1-2
      months). But that's largely a matter of style, and
      risk/reward preferences - obviously one has to determine how
      desirable it appears, and how comfortable one is, being
      locked in at a given level for the different periods of
      time.

      Mind you, I'm not recommending such a play, nor am I
      doing it myself.

    • Congratulations, Gwy. It appears that fear is
      temporarily commanding a very high premium for PB options.


      I wish I had a ton of cash just waiting for a
      short-term trade. I'd be buying PB and selling the apr 12
      1/2 calls for 5 1/2 (!) each. Net cost would be
      10.1875/share, so if you got an eventual exercise at 12 1/2,
      it's a quick 22.6% profit (and no loss unless the
      stock stays below 10 3/16). But if you're in it for the
      "long-term" (in spite of the fact that, including yield, the
      stock has returned about 1% annually since late 1993),
      I guess you wouldn't mind holding the loss.

    • <"how are those call options doing,
      gwy?">

      They're holding up pretty well. Thanks for your concern.
      Here's a link you can use if you want to track
      them:

      http://marketsmart-delay.pcquote.com/cgi-bin/options.dll?ticker=pb&ALL=1

      Otherwise, check back with me in April.

      By the way,
      are you trying to add any value, here? You're doing
      an awful lot of posting for someone who claims to
      have no position or interest in the stock.

      If
      you're short, as your nic implies, just say so. So far,
      you've provided no reason to give your posts any kind of
      credibility. The most interesting thing you've posted is your
      CTEA spam.

      Otherwise, you appear to be visiting
      this board with the sole purpose of attempting to goad
      people and/or incite panic reactions. Sad if that's the
      case. And not worthy of further response.

      But I
      remain happy to engage in any serious discussion of the
      stock, if you're long, short, or just looking.

      • 1 Reply to gwynnj
      • I have no position in this stock; you, on the
        other hand, have a highly leveraged one. As I said,
        I've been seriously considering PB since it was at 28.
        I am also not dumb enough to believe that anything
        posted here actually moves the liquid ADRs of a midcap
        foreign company one way or the other. (When everyone on
        the message board of a stock that's been falling
        through the floor expresses bullishness, however, it's
        not a good sign; a good sign would be if people
        started posting things like "I bailed out of this &%4#!^
        stock because it is going straight to 5; good luck to
        those of you who are foolish enough to stay
        behind."

        That being said, while I have suggested an alternative
        investment in the beverage sector (one whose EPS prospects
        are brightening, not worsening), all you do on this
        board is cheerlead. As I said, look at how low the
        trailing P/E dipped in 1995; all the way to seven, I
        believe. There's nothing wrong with having a little cash
        come late October. Furthermore, anyone asking about
        options strategies on a Yahoo! board doesn't need to be
        trading options; you aren't doing anyone a favor by
        advocating high-risk forms of investing in an unperforming
        stock.

        You want to talk fundamentals? Fine, lets
        talk. The estimate downgrades for 3q and 4q this year
        were based mainly on weakness _currently_ being
        experienced in some of the company's key markets; not on some
        sort of unjustified fear of the future. If the company
        isn't executing on plan when macroeconomic conditions
        are favorable, what will happen when they turn
        poorer? Nobody knows, but everybody knows it probably
        won't be good. This company may well earn $1.00 in
        FY99, and the stock could fall to 11-13 as soon as next
        month; if you are in in for the "long-term", that's one
        thing, but "long-term" investors aren't holding options
        that expire in six months.

 
PB
60.74-0.44(-0.72%)11:30 AMEDT

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