Philip Davis

Options Trader: Friday Outlook

Thanks Lobster. If you want to get an idea of what we do in member chat, I did take the time to address BSchecker's "concerns" to the trades he asked about in the next post. I don't claim to be perfect - we have wins and misses but the nature of the hedged strategy we run is that we cash in our wins and usually we can roll our misses and turn them into wins at a later date. With a diversified portfolio, time is on your side and, as I we like to say at PSW, there's always an option...


WM/Calvin - Of course there's a possibility but $2 would very likely be on the way to $0 as the bank is already priced for bankruptcy. Like the stand we took on C in the teens, sometimes you just have to look at a stock and say "Yes, I would buy the whole company at that price." WM tested $3 and bounced sharply back on the 14th and we're hoping that line holds for the rest of the month. On this play, if we have faith that the downside is $3 on our $3.10 net entry and the upside is $4, it's a pretty good risk/reward spread.

Also, you have to look at the fundamentals. Congress is passing a housing bill that Bush said he would sign. The concerns on the banks is primarily based on concerns of the value of their housing portfolios due to high default rates so fixing the housing problem fixes the banks. While it might not make everything all better, it sure might mean that some part of the 85% drop in value for WM may be recovered, giving us a nice win.