I profiled a Wachovia (WB, $10.80, down $0.71) option trade yesterday morning shortly after the market opened when the stock was at $10.10. If you are not an option trader or are not in a position to follow the market during the day then it is hard to really get a feel for the volatility that we are going through.
Not many people have the luxury of following the market so when you mention to other people that Wachovia dropped from $20 to $10 within a week, their jaw drops. The real story with Wachovia is that the stock has dropped from a 52-week high of $53 to $10. The massacre in the financials has a lot to do with “credit swaps”, pricing power, borrowing costs, blah-blah-blah. So who really knows what anything is worth?
As an option trader, I try and make sense of what areas are working and which ones aren’t. Wachovia hasn’t had any “bankruptcy” rumors and I think it is a name that can survive. However, it’s like trusting a fat kid with a cherry pie. Will he eat it or will he save it like you asked? It’s the chance you have to take.
The January 15 calls (WBAC, $1.75, down $0.65) were at $1.40 and the January 20 calls (WBAD, $0.85, down $0.15) were at $0.65 when I did the blog. I said at the time “now might be just the right time to play a quick bounce from here.” I only repeat myself because I want you to carefully read what is going on in the market right now, not to toot my own horn or anything like that. It’s hard to write a blog to try and get you a feel for the market…but I am trying.
The point is, look at where the entry prices were at the time of the article and where they CLOSED at yesterday. Before the close, you could have sold the 15’s for $2.40, up from an entry price of $1.40. The January 20 calls could have been sold at $1.00 after an entry point of 65 cents. That’s a 35% profit.
The market is giving us profits faster than the government is printing money. Take advantage of it.
Rick Rouse
Rick@OptionsMentoring.com