June Option Call: ANDS $5 Strike
By admin on May 12, 2009 in buys, options
I just bought a June option call for ANDS. I bought 10 contracts at 30 cents per share at a strike price of $5. Each contract represents 100 shares.
The stock is currently at $2.94 and it closed over $6 as recently as April 21st. It’s 52 week high is $8.43… I got the idea for this play from one of the members of the TIM ALERTS “community.” This is a guy I’ve seen make a lot of great stock picks so I trust his advice.
That being said, I’m well aware this is a gamble and the most likely scenario is I lose my entire investment ($300 + commissions.)
So what’s the upside and how high does the stock need to go for me to break even? Well basically my 10 contracts means I have the “option” (that’s why they’re called options) to buy 1000 shares of ANDS at $5. At that price that would cost me $5,000 plus my initial investment of $300 for the options that means the stock will have to go up to $5.01 for me to start recouping some of my losses and up to $5.30 for me to break even. Anything above $5.30 will be profit.
For example if the stock goes up to $6 then my profit would be $700 ($6000 for the sale of 1000 shares at $6 minus the $5000 to buy the shares at $5 and the $300 for the option call.)
The exciting thing is this: What if the stock really takes off? What if it shoots up to $15 for example (highly unlikely but I’ve seen crazier things happen.) In that scenario I would be up close to $10,000 ($9,700) on a $300 investment. That would be one heck of a return, don’t you think?
Basically I’m looking at this as a little lesson on options and a bit of a fun gamble on the side. I didn’t want to put too much into this as I want to keep most of my funds available for my usual trading strategy.
I can also sell the option call itself. For example right now there’s a bid for this option call at 20 cents/share so I could sell it for a $100 loss (I bought it for $300 and I’d get $200 for the sale) if I wanted to.
I have through June 19th to exercise this option. In other words I have until June 19th for this stock to pop above $5, if it happens after that it’s worthless to me.
Thanks for breaking this down, I’ve always been skeptical on options because I don’t understand the inner workings of options, but now I have a better understanding. BTW, from Tim Sykes pennystocking video, he mentioned that most pennystocks ( < $5 per share) are usually not optionable, what is your experience with that?
kenn | May 12, 2009 | Reply
That’s true. Most of them aren’t… And the ones that are usually don’t seem to have as many choices. But for me my plan is to take it on a case by case basis.
ANDS is down to $2.53 at the moment. Ah… June 20 is still a ways away. I’ll just have to keep my fingers crossed. Definitely a gamble. But if it pays off, it could pay off in a huge way.
admin | May 13, 2009 | Reply
Ouch! Not looking good. $2.27 right now. June 19th is still a ways off, but… not good.
admin | May 14, 2009 | Reply