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Long Straddle - Lesson learned on NCP

  1. Roamer

    1,610 Posts.
    Well it is a good day when you don't loose much on a bad decission and learn how to kick ass on a revised strategy.

    I bought some long Puts for NCP the day before they reported, hoping they would get slammed the next day on worse than expected results. I came on late and did not have much time to really work out the possibles so just went with it without risking much. The fact that NCP rose slightly the same day should have been an indicator that they where not likely to get slammed unless something came from way out of left field.

    I bought 4 10.50 May Puts for 70c. Total investment including brokerage of about $320 say (hoping to make perhaps up to $4000 or more in one day.Now for about double my investment I could have done a Long Straddle by also buying 4 13.50 May Calls. (Buying close to expiry soa as not to pay for time value.)

    End result would have been a tidy profit after costs.

    This strategy only works if you are expecting a big move in either direction. If the shareprice remains steady then you can exit the positions and cop a very small loss for your venture.

    This will all be pretty boring for experienced options traders (my apologies - nothing new) but might be an interesting strategy to keep in mind for others.

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