I am short 40 call's on RMBS 3 days to expire worthless and this happens (those of you who havent seen the premarket trade price on RMBS it's up 41% already!).
a riskless gain working for someone else, I earn a lot, I love my job, I love being around many really smart people, I love the satisfaction of getting paid a great bonus when my performance was great, and I accept some or no bonus if my performance sucked. But I still go home in the end of the day, knowing that I have got a great job which I like. Need more reasons? What others feel or think, I do not care its their life. I love my life and job and want to stay that way ;-) BTW, do you think I care whether you post my PMs or not? I could not care less. BTW, its in German, if you think you can piss into my car then you also need to translate my PM so all can understand. But be careful, it could backfire.
Rambus (RMBS:Nasdaq - commentary - research) scored a major win late Tuesday when the Federal Trade Commission dropped an antitrust suit against the company. In premarket trading Wednesday, shares soared $10.11 or 39% to $35.95. The stock closed Tuesday at $25.84, up 31 cents, or 1.2%. Oh, f. sh...t. What are you going to do now? Hope this doesn't hurt you that much.
Years ago when I was stupid enough to be looking at short options strategies, I asked an options broker if I could create a regular income stream through selling premium on calls or puts. "Can't do it," he said. "But why not?", I asked. "Because shit happens," was his answer. Of course I thought I had it all figured and didn't listen to his simple advice. Many thousands of dollars in losses later, I too realized that shit happens when you least expect it, and a short call or put gone bad isn't worth all the effort put into collecting a small premium, no matter how fail-safe the position may seem to be.
Blair Hull: "I was consistently making money, but that kind of strategy - selling deep out of the money options - only leads to consistent profits until a catastrophe arises."
what that broker was trying to tell you, and I will tell you why: Given nearly perfectly arbitraged option prices, the risk of near-sudden moves is already priced into the option and therefore from a option seller's risk standpoint, this risk is estimable. This fact does not help you with your one single position, no doubt about it (especially not in a stock option pos.). However, when looking at an option portfolio and over the longer term, short option positons are at much better odds than a long options portfolio: In simple terms: A long bet needs to be right about the extent of the move, the direction, AND the timing of the move. A short bet needs only be right about expected volatility. Statistics clearly show that most options expire worthless. I will tell you why your broker told you such wrong thing: Most sellers in options tend to hold on to their positions until expiration (unless having estimated volatility incorrectly) cause this is their job, earning money with time. Buyers of options tend to trade much more frequently, something your broker depends on. One tip: Consider selling options on index futures. The underlying's price behavior is much more smoothed out rather than a single stock which is subject to merger announcements/ and other unsystematic risk.