26 December 2006

Reasons To Not Chase Big CC Premium - RE - REVISITED

The latest Big IV stock the Buy/Writers have been chasing premium on is Telik Inc (TELK) with IV 's in excess of 200% on the table. I've batted on about these Buy/Write strategies ad infinitum to anyone prepared to listen (and a great number who weren't lol) down here in the antipodes for years now.

I stress though, there are other ways to play these huge IV's, but Buy/Write is the silliest way in my opinion. Why? Because of the uncovered downside risk.

This last few days has been a treasure trove of examples of this and these have been trades that have been discussed extensively on various trading fora during the last month. First (NUVO), then (NFLD) and now we have (TELK), which released news today. (Hat tip to Adam Warner)

The picture says more than words ever could:

That's three train wrecks in the space of 8 days and it's quite possible that readers of those forums I mentioed could have traded all three. OMG!!!

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