Friday, March 18, 2011

WHAT WOULD YOU DO:

Here's an interesting DITM trade. A month ago, on Feb.23, I bot 200 LO at $79.71 (as I recounted awhile back) for $15951, sold the June 75 calls for $1686, got the $260 div'd. Would you hold onto the trade, hoping for the May div'd, or exit the position for a $620 profit ? That's 46.6% ITB (in the bank) after 1 month. There is still some extrinsic (OTM) value in the option since the IV ran to 47 on the 7 point runup today. Remember, ATM calls usually only move up 50% (Delta) to the stocks 100%; but the higher it goes DITM, the closer it moves with the stock.
Your call.
It is, after all, a tobacco stock - legislation is pending on menthol now. My BTI dropped 7 points from where I bought it, but due to the Call, div'd, I do not have a loss in it!

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