The Temptation of Buying A One Day Call On Thursday Afternoon.

It's usually better to wait until Friday morning and then deciding which way the markets might go. They can however on Thursday afternoon be tempting. Thursday was a trick with Boeing only up $.02 cents on the day. Here is it's one day chart. Playing it from (9:30 a.m. until 11:00 a.m.) was the way to go. On Wednesday we referenced Boeing looking like it's old self again. Now look at this. Focus on the chart from 1:00 p.m. unti 2:30 p.m. That period of time could have got Call option players excited. Experience also tells us that the 2:30 p.m. - 4:00 p.m. period of time is one of most dangerous times of the week to be looking at Call options that expire the next day. Now here is it's full one day chart. From 2:30 p.m. until 4:00 p.m. it really did nothing, with no indication of would happen on the following morning. Do your own homework to see if you concur with this logic. Now Friday morning and the one day options that expire at 3:00 p.m. this afternoon. Only 355

So You Think Costco Should Be Lower In Price Based Upon The Prices It Now Charges For Gas, Olive Oil And It's Chicken Products . This Blog Is Long And Boring But It Does Have A Surprise Ending!

It's difficult to go against a strong stock that seems to do nothing except go up. Yet having said that you think that the Costco stock is too expensive and you want to play it down (buy a Put) on it. Some people are now saying that the company is not trying hard enough to keep their prices down. That plus Telsa is now getting slammed in price and that doesn't happen very often. Its Tuesday morning and you are thinking of Puts on Costco that expires in four days time which is a Friday. Logic says don't do it. Why put yourself in a position where the passage of a few days of time could become your worst enemy? Here is it's five day chart before the opening bell. I wouldn't be buying Puts but let's track what happens anyways.
Get set for a suprise. Here is what the markets are doing at 9:54 a.m..
How is Costco doing? Here it is at 9:54 a.m. It's up.
That's kind of strange right? How are the Calls and Puts doing? This might suprise. First the Calls.
Now the Puts.
Wait! All of this is crazy. Who wants to post $20.00 a contract or $2,000 U.S. on the assumption the stock is going to move $20.00 up or down in price by the end of the week just to break even if you guess it's direction correctly? That's the way the option system is set up. Yet then again if the stock ever dropped lets say ten dollars in one day that would be enough to move the needle on a Put position by about 25 or 30 percent. That in itself could be part of the logic of trying to play these options. Lets watch and see what happens next. Here now is how Costco and the markets closed on Tuesday.
Knowing this let's revisit the same Calls and Puts that we looked at this morning.
Now the Puts below. Notice how both the Calls and the Puts remained crazy expensive.
So there is second layer to this story which needs to be explained. It's called doing a "spread". If you own the stock or have a chunk of money in your account to use as collateral you can sell both a Call and a Put, in this case a 762.50 Call and a 762.50 Put option that expires this Friday and collect the two premiums these options are commanding. Hopefully later you can close out these two positions at significantly lower prices if the stock remains around this magical $762.50 price range. If it does, both the two Call and Put options you sold could become near worthless. Remember there are other option series like the 760.00 Calls and the 760.00 Puts that you could employ to use this strategy. As the market moves forward each trading day the premiums on both the Call and Put options should shrivel up to a much lower number if the stock continues to moves sideways. As time marches on you could hopefully close out both of these positions at lower prices than what you initially sold them for and collect the differences in their pricings. Does this sounds to complicated? Not many stock holders involve themselves in these types of activities. In the same sort of way, not many financial planners have the time or patience to fiddle around with clients wanting to learn more about how these types of antics work. Let's now wait and watch what happens next. What I forget to mention was the one danger involved in employing this stategy. What would happen if Costco suddenly gained $50.00 in one day or lost $50.00 in one day? Stocks in this price range sometimes do that.That would cause heart failure as you would have to jump back in and close out one of your suddenly offside positions at a considerable loss. That plus the other side of your open position would also lose most of it's value. Ok, so forget the notion of creating a spread. Here is something else you might want to consider if you believe in playing the downside. Look at this series of Puts which are two weeks further out.
Can you see how it says March 24th? The $762.50 series of Puts closed at $24.60 their high of the day. Remember the March 8th Puts with the same striking price closed at 21.75? One could purchase the March 24th Puts and sell the same series of March 8th Puts against them. The cost would be the difference between the two of them which is about $285.00 plus commissions. If Costco closed this week somewhere around where it is trading at now you would have a sizeable profit on the $762.50 Put options sold which would far exceed the shrinkage in value of your March 24th Puts. Is that a strategy to consider? To be continued. A Wednesday end of day update. The Calls we first looked at are up as is the stock. But it was the Puts we were really looking at and they got squeezed.
For the sake of learning I will also show you what the near term $762.50 Puts we were looking at are now trading for.
With now only two days to go I am suprised that they didn't drop more than that. To be continued. Now a Thursday reading with one day to go.
Out of curiosity let's see what the 785 Puts that are expiring tomorrow are trading at. Here is the answer.
Let's see what happens. Suprise!
Our Puts came back to life.
Now the final closing reading.
Doing the spread I tred to explain would have been a costly mistake. *** As the days marched on this week I had to ask myself if my thinkings were totally off. Why try and fight a strong stock? Then it happened, it crumbled on the release of an earnings report. Sometimes it does pay to fight rising stocks.


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