Monday, November 9, 2009 options

So the other day I revelled to my wife the fact that (AMZN) shares popped about 25%, up to ~$118 per share, on the company's positive quarterly earnings news.  That made me happy, since I bought my AMZN shares at just over $7 a piece, back in the very early part of this century.  A 15-bagger, as they call it, is unusual and something to be savored.  Be happy, enjoy it, bask in the glow, and all of that crap.

So I immediately decided to bet against myself.  On some future date I will explain how I have made some money in the past by buying deep-in-the-money Call options on various companies that expire several months out, hoping for upward share price movement.  AMZN, however, suddenly --- VERY SUDDENLY --- being at an all-time high (yes, higher even than it's price during the Dot Com boom), was way too high too fast.  So, not wanting to sell any of my shares (I just plain like the company and its CEO, Jeff Bezos), I decided to look into buying some Puts that are a few months out, assuming that this sudden price peak is an anomaly, at least temporarily.  So off I went into my Ameritrade account and delving into the Yahoo! Finance pages, looking through all of the relevant research.  I found some $80 Puts that expire in January 2010 (just 2 months out) that were priced at $.50 - $.60 each.  Buying 10 would only cost me ~$500 - $600.  I'll take that gamble.  So I bought my 10 January AMZN Puts with a strike price of $80 at $.53 each.

That was a couple of weeks ago.  AMZN's price went down a bit and my options went up a bit, and then they both reversed course by this past Friday -- AMZN closed at ~$126.  So this morning I picked up another 10 identical Puts at $.42.  My average price is now down to $.475.  Soon I shall place a good-til-cancelled (GTC) limit order to sell them for around $.58 each, which will net me some $2000.  I don't know how far down AMZN needs to go in the near-term for my Puts to go up that far, but I am hoping that everyone's damned holiday cheer and gift buying and such won't screw up my plan.

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