Cramer's COF timespread

Hello_Dollars · Jan 21, 2004

Quote from Maverick74:

Yup, that is also a good trade. In fact there are about 10 better trades then the one he gave. Interesting.

Yeah, I agree. Scary to think of all the neophytes who blindly follow his advice. Oh well, it's good for liquidity.

AAAintheBeltway · Jan 21, 2004

Quote from Hello_Dollars:

A long Feb 70c/June 70c time spread looks like a much better trade. The Feb 70's are at 39 vol while the June's are at 33.

I noticed that but I'm worried if they do a quick deal, the junes kind of leaving you in a bind.

Hello_Dollars · Jan 21, 2004

Quote from AAAintheBeltway:

I noticed that but I'm worried if they do a quick deal, the junes kind of leaving you in a bind.

Why? Is the takeover price expected to be below $65 (your estimated break-even at Feb expiry, assuming vol stays at these levels)? Or are you concerned that vol may come in on news of a deal? If so, the risk seems low given that the implieds are at the low end of their historic range. If the concern is t the upside (beyond $75 or so), you could always ratio this. But in that case, its the short Feb's that would be the problem, not the long June's.

AAAintheBeltway · Jan 21, 2004

Not sure I understand how you get that b/e.

Hello_Dollars · Jan 21, 2004

Quote from AAAintheBeltway:

Not sure I understand how you get that b/e.

OpVue.

freehouse · Jan 21, 2004

Quote from Hello_Dollars:

OpVue.

Just hope that if a takeover does occur, it will not be a take for cash.

AAAintheBeltway · Jan 21, 2004

What's wrong with cash?

freehouse · Jan 22, 2004

Quote from AAAintheBeltway:

What's wrong with cash?

Then if you have a calendar spread on (long June calls for example), the time premium would be sucked out.

Cutten · Jan 22, 2004

What about short Feb 70 calls, long March 70 calls for a debit of about $1 based on closing prices yesterday.

Another would be to short the Feb 70s, then buy 2 of the March 75s, or 1 March 75 and one Jun 75.

AAAintheBeltway · Jan 22, 2004

Quote from freehouse:

Then if you have a calendar spread on (long June calls for example), the time premium would be sucked out.

Ok, I see your point. I saw that as the risk of the Junes but didn't appreciate the all cash aspect of it.

In any case the stock blew away the consensus numbers last night and is trading over 3 points higher. All those "morons" who Cramer said paid way too much yesterday for the Feb 70's are feeling like geniuses.

If we looked at this situation as one in which we simply wanted max gamma, ie there would either be a deal at much higher prices or the stock would crater, how would you have played it? Short stock and long calls? What are the tradeoff's between playing a potential takeover that way instead of using a timespread?