Thanks to everyone here for your discussions on BMY. I started trading it yesterday.
Sold bull put spreads Oct32/33 for $0.39 credit.
Bought Oct12 calls for $1.18, bought when it dipped
For the bull put spread, both legs are already OTM, but I decided to be more conservative and just capture a chunk of the difference in extrinsics rather than have the upper strike start ITM. This assumes the extrinsics drop close to 0 on the dividend runup. If not, I should break even.
We'll see how she goes. It's a learning trade.
Can't reply directly to your msg, since Yahoo has seen fit to remove the "Reply" button for me.
Thanks for the comments, and thanks particularly for your BMY insights in the past few days. It was those, along with the collective confidence & posted trades of other regulars here that pushed me to buy in. Also, while first on my tiptoes at the edge of the diving board, OptionJunkie provided the final fire on Monday night to "jump NOW!", when he predicted that BMY's div announcement was likely coming after close Tuesday.
This isn't over until we've rung the register, but Friday was certainly a very nice start. Won't even allow myself to think about $34.50's, just getting to $34 would be great ;). Hope you and everyone else here are now well over your basis!
BMY bull put spread on the weekly options
Oct 33/32.5, credit of 0.15. I risk losing 0.35 for a gain of 0.15, so a 43% return, based on the way I calculate my % returns for spreads. As long as the price doesn't drop more than 0.08 during this beginning of the dividend run, I make out like a bandit.
I'll probably sell more tomorrow, even at a lower credit, unless someone gives me reason to think this is a bad play. If it is, I want to know. Thoughts?
Would you plan to sell the spread before Oct 2 (BMY ExDiv), or let the spread expire?
Keeping in mind I'm less experienced than a lot of folks on here when it comes to options: I will take a guess that by using a spread, you're making it a little tougher on yourself with the BMY ex-div rapidly approaching but the Options Ex not being until Oct 19.
It seems to me that the max value on a spread isn't reached until Options Ex (or very close) so if you want the full .15c you have to hold & wait until near then (long after BMY has gone ex-div with corresponding pull-back in stock price)... If you try to buy back the Oct 33 leg before Op Ex you'll find it has a few cents of value left in it.
It's early in the morning and the kids are poking me to make 'em breakfast so I'm a bit rushed & could be off-base on this.
BMY +31c right now as I type this so certainly we are all off to a great start this morning and you've got some buffer building on your bull put spread from yesterday!
I made a single bet on this yesterday (70 contracts, Oct $32's at ~1.07) and was glad to see BMY around +15c earlier this morning (9/19). But it sure has been weakening ever since, trickling down penny after penny. When I started typing this we were only +3c, and since then it's gotten worse still, BMY now 2c into the negative (and on a generally "up" day for the market).
Not exactly the reaction we were expecting, but plenty of days left until ex-div so I can only shrug, and think about whether I want to buy in a little further today should BMY weaken more. Maybe go to an even 100 contracts...
Hoping to see continued thoughts/commentary by you guys in the coming days!
On your spread:
Max gain=.39 @33
Max loss=.61 @32
As you know, BMY's high will probably be reached prior to the X-d.(circa 10/5/12). However, the OPEX for October will be on 10/19/12 (OPEX=3rd Friday of every month). Herein lies the rub. Your sold puts will still be in play until 10/19/12. Over the last 4 Qs, BMY's price swoon between the pre-X-d. high and the intraday low prior to the following OPEX, is as follows:
Oct -$ .64
For an average (4Qs) swoon of -$1.79. Should BMY have a "soft" run up from here, only reaching a high of 34, the post X-d. pre-OPEX average swoon of -$1.79 would put BMY's price at .40 below your BE. Not sounding the alarms, as this is simply the average; just more data for you to consider (as the X-d. approaches, you might want to look at the risk/reward of closing out the sold puts at the high prior to the X-d. As spreads are more Doc's purview, I would seek his counsel on this matter).
Here's the good news. Despite BMY's sluggish performance, the history over 4Qs from yesterday's open (as a proxy) to the high prior to the X-d, suggests a range for the high of 34.02 to 35.52, with an average high of 34.76. Stepping out to the last 8Qs, the range is 33.54 to 35.52, with an average high of 34.63. While the numbers look encouraging, BMY's recent price performance suggests to me (non-scientific) that the lower part of the range, circa 34, is more realistic.
As regards your Oct 32s (I'm presuming 32s based on price) at $1.18, for a net of 33.18, I see these as "money in the bank". 33.18 should be protected, and if BMY reaches 34, you will have a nice ROI of 69+%; not bad for a two week play. Good luck with your trades.
I currently have positions in BMY OCT32s, DEC31s, and DEC33s.
Definitely. I have no intention of holding any of the options through ExDiv. My plan is to close them out 1-2 days before. Excellent advice, and I'm glad to know that my plans are in line with it. It gives me more confidence in my trades.
If ExDiv was the week after OpEx, that'd be the best, but no such luck. Well, not until the dividend announcement and the appropriate BMY weekly options start.
Any plans on trading the BMY weekly options during the runup? I'm highly interested in seeing what the extrinsics do.