Thursday, May 08, 2008

Butterflies in My Stomach-- PCLN ER Play

This is a tough one, PCLN moved post-ER in Qs, so a long straddle would seem to make sense, except that the IV is extremely high and the premiums are horrendously overpriced. Which means if it does not move more than 10%, a long straddle could be doomed as the IV will collapse for sure. So, here is what I have done today:

Strategy: long butterfly spread

Sold: 4 May 125 call at $5.9
Bought: 2 May 115 call at $11.1
Bought: 2 May 135 call at $2.45
Net debit: $3.5
Maximum loss: $350 (excluding all fees)
Maximum profit: to da moon (yeah, right!)

Also bought 2 puts each for AAPL (June 180) and MON (June 120) earlier today, but did not pull trigger on SOHU June 75 put.

Now, if you excuse me, I just got butterflies in my stomach!


flyingwabbit said...

wow! 3rd straight post-ER that it jumped more than 15%, and I thought this time around it won't beat the estimate that much. Oh well, at least my maximum loss is fixed. Feeling like Madam butterfly now :P

RazoR said...

I believe you have just made enough to fly out here and buy me, and my bro's drinks, congrats!

flyingwabbit said...

Not too fast! it rose near 18% in AH, we will see how much the collapsing IV can save my ass. But in the worst scenario, it is only $400 loss, no biggie, still have enough dough to buy you some drinks :)