I am thinking of rolling my Jan calls over to April
Looking at $14 calls at 3.30 plus $15 puts at 1.20 as insurance. About $4.50 cost -- any buyout in the 20s should be good and there is no way Board will go for less.
If all talks break down, I am thinking Yahoo will tank to low teens and the puts will close to recover my costs.
Your long 14 call and long 15 put for a total cost of $4.5 is
equivalent to buying the 14 put and buying the 15 call for a premium of $3.5 The only difference is the $1.00 intrinsic value between the strikes you are paying for now. You will not lose that dollar, but why pay the dollar up front.
If you have the capital, you could buy puts and stock to benefit from any unusual deals that may happen. Just like calls, only
the opportunity cost of more of your money being tied up.
Well, the way YHOO has been trading recently there does seem like the market has a wait and see attitude similar to yours. But that is one of the reasons I'm using a diagonal call spread.
It's similar to a covered call position, but instead of being long shares of YHOO, I'm long in the money calls.
I'm trying to write calls week after week until YHOO pops. If there are no major pops in the interim, I won't have to buyback my calls.
i appreciate your strategy as i am an options trader for many years, formerly floor trader back in the day. i would keep the jan calls, and if you need the puts do the april puts. its just that you lose liquidity and pay all the extra premium going out another 4 months. just my take. surely not that of your broker.
Wouldn't be my strategy.
The puts aren't profitable at all until 13.80. Low teens is 13. That .80 does not anywhere near recover your call costs and they don't make money until almost 18 is reached. Meanwhile you are at risk for a long time. I'd be (and I have )buying stock then selling short term calls like the nov 17 and 18's. You can let them ride or in my case, buy them back 20 to 30 cents cheaper.Of course all the stock was under 14.70 when I bought so if I were taken out at 17 it would be an effective price 17.84 and I'd be more than happy getting out at 18 so that is close enough.I also bought Jan 15's 1.5 about a month ago . ALMOST SOLD AT 2.40 the other day but decided to ride the bus a little longer.
Trade looks good, only change I might make is buy puts at a lower strike. They cost you less and my take on this situation is that high probability a deal will go through. If not, most YHOO employees would abandon ship and YHOO will crash and burn.
For YHOO in general I would favor a diagonal call spread and I have placed one with calls written in the near month at 17 and calls bought at 16 in Jan 12.