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Titan Corporation (TTN) Message Board

  • gamerman12 gamerman12 Nov 24, 1999 8:14 AM Flag

    TTN Options - A strategy to make money

    I am going to explain a relatively simple way to
    make money in call options when you have a stock like
    TTN.

    The value of a call option can be simplified to
    intrinsic value (based on what the shares are worth now)
    plus time value (based on the amount of time left
    until the options expire and the chance that the shares
    will rise in price). Ther are all sorts of fancy terms
    for these such a gamma and delta, but don't let that
    get in the way of you making money.

    Now when
    it is only a couple of months left for the option
    before expiry the amount of time value rapidly decreases
    and it all becomes a bit of a shark pit. So the trick
    is is to buy a call option 6 months from expiry and
    sell it, about 3 months from expiry. Then to make sure
    it is nice and cheap the strikeprice (the price that
    the shares can be bought for when the option expires)
    needs to be about 10% more than the current price, this
    is known as 10% OTM (Out of The Money) (ITM = In The
    Money, ATM = At the Money)
    More experienced options
    traders than I have developed this little strategy and it
    is known as the 6/3 Options Strategy.

    With a
    stock like TTN you can expect an enormous leverage on
    the return you would otherwise get. The sorts of
    returns you get from options is that they magnify the
    returns stocks which have big run ups and lose money on
    stocks that only increase a modest amount.

    A
    problem that is ocurring with TTN is that the stock price
    is increasing so much that getting OTM strikes is
    really hard.

    If you were to put this strategy
    into action the closer to 6 months and 10% OTM the
    better.

    After 3 months sell the options and if
    you still want to be in options, buy some more then
    that are about 6 months from expiration.

    As
    with everything there are traps for unwary players, so
    read up on Options at places like www.cboe.com before
    you plunge in.

    I purchased some TTN DE (April
    2000, strikeprice 25, the closest I could get to 6
    months and 10% OTM) when TTN was about 22, for
    3 7/8
    (1 options contract is for 100 shares)
    just a few
    days later they are 6 3/8, not far
    off doubling my
    money in a very short time). However, I am going to
    keep them until it is 3 months from expiry (this will
    be 3rd week in
    January and if TTN is around 50
    and still
    rising I will make 6 or 7 times my
    investment,
    more than making up for the other
    losers!)



    There are some advanced tweaks to this
    simple
    strategy, which I would be happy to go into if there is any
    interest.

    Go TiTaN !

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