Our last Long Shot list was a huge success.
As we are in a similar stuation this weekend, when stocks may have run up a bit too far to buy – it’s a good time to look at other long plays we can make “just in case” the rally continues. Our Long Shots are meant to pay off big when the market rises big while not risking too much capital but they are RISKY plays as they are not very adjustable if there is a pullback. Nonetheless, ourlast group has performed spectacularly so let’s reveiw those and then make some new plays as the market swings for the fences.
C – Buying 2011 $2.50 calls for $1.14 (now $1.98) and selling the 2011 $5 calls for .56 (now $1.03). That’s a net gain of .37 on the .58 spread or 63%, which is pretty darned good for 6 weeks but our goal on this trade is a 346% profit and we’re not going to get there without some very greedy holding through some very big returns. One trick with these sort of plays is to buy a bit more than you plan to hold long-term, like 20 @ .58 ($1,160) rather than 10 ($580) since the downside curve is not very steep (unless C suddenly went BK, which was doubtful). Then you could snatch 10 off the table at .95 ($950) and you could let the remaining $210 ride and it would still pay your target $2,500 if it hits goal at expiration.
Always remember with these plays they are loke betting on long shots at horse races EXCEPT, you get to change your mind and withdraw most of your bet after the race starts and you get a look at your horse’s performance. That’s a very good deal but you MUST use that power and take the bad bets off the table othewise you blow your entire advantage!
UYG was another one that just seemed too darned cheap at $3.87 (now $5.55) and we went for the 2011 $4s at $1.38 (now 2.30), selling the $5s for $1.12 (now $1.90) so we’ve gone from net .24 to net .40, up 66% but, like C, we’re not going to get to our 300% goal without holding on through some ridiculous profits are we?
YRCW – Selling 2011 $2.50 puts for $1.75 (now $1.70) and 2011 $5 calls for .75 (now .90), a net loss of .10…
