Tuesday, June 3, 2008

buying calls when the stock is down

These days, I am trying somewhat of a contrarian strategy, i.e., buy calls/puts when they become cheaper, regardless of the movement of the (underlying) stock.

few days ago, I bought FSLR puts when the stock was (up almost $20 that day).

Since I have been observating FSLR's movements, moving up and down very erratically each day and I had tried to stay on the short side of this stock for a long time. Always, just buying puts and keep loosing, as the stock will move down one day and more down the next day but then suddenly it would jump higher the next day. As if someone is deliberately trying to shakeout the put holders. That up day would make me so scared of loosing it all that I would immediately sell. But the day I tried the inverse strategy, it really worked well, it made a turning point for my trading as well.

Today I am testing the same strategy with MA (master card). I bought calls while the stock was down -$10. Though it may be wrong to apply something that worked for FSLR to another stock.

There was also another factor in buying calls on MA today; early morning MA was down $10 but when I checked the options, strangely, they were all high, contrary to what happens in most other stocks. I thought may be someone knows something. The stock may be coming back up.
With this rationale, I bought the 3 calls.

The stock has not come up, has moved down and ending -$13 for the day. But since I am holding the position until next day, it will be interesting to see how the stock moves tomorrow.

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