Trading Options on SIFY-Lessons from Behavior of Volatile Stocks
SIFY has some options which one can trade in addition to the Common. The spreads are okay, for a small cap this size.
Good options traders are buyers when options are cheap, and sellers when options are expensive. If you are not an ultra-bull on SIFY, or are bearish to neutral in the near term, selling options could bring in some nice income. How?
The stock is at $11.10. The June 06, 12.5 calls can be sold at $2.10. If you sell these calls, your net outlay for the position is $9.00 ($11.10-$2.10). If SIFY closes above 12.5 at June expiration, your stock will be called out, but you wouldve made $3.5 on it. That is approx a 40% return in 6 months, from your buying price of $9.00! Not bad.
If the stock closes below 12.5, you get to keep the premium and the stock, and nothing's lost.
Looks sweet? There is a caveat. Suppose something really bullish unfolds over the next 6 months on the stock. The stock shoots up, goes to $17. Then you made a mistake by selling it at $12.5, sort of. The return can be much bigger if you just bought and held.
Another issue: Uncle Sam. You will be taxed on capital gains if you sold.
Options traders are often taking all this into consideration before establishing a position, long or short, or selling covered calls.
Either way, you now have another option when trading or investing in SIFY and REDF.
Sanjay John G.
Good options traders are buyers when options are cheap, and sellers when options are expensive. If you are not an ultra-bull on SIFY, or are bearish to neutral in the near term, selling options could bring in some nice income. How?
The stock is at $11.10. The June 06, 12.5 calls can be sold at $2.10. If you sell these calls, your net outlay for the position is $9.00 ($11.10-$2.10). If SIFY closes above 12.5 at June expiration, your stock will be called out, but you wouldve made $3.5 on it. That is approx a 40% return in 6 months, from your buying price of $9.00! Not bad.
If the stock closes below 12.5, you get to keep the premium and the stock, and nothing's lost.
Looks sweet? There is a caveat. Suppose something really bullish unfolds over the next 6 months on the stock. The stock shoots up, goes to $17. Then you made a mistake by selling it at $12.5, sort of. The return can be much bigger if you just bought and held.
Another issue: Uncle Sam. You will be taxed on capital gains if you sold.
Options traders are often taking all this into consideration before establishing a position, long or short, or selling covered calls.
Either way, you now have another option when trading or investing in SIFY and REDF.
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Sanjay John G.
1 Comments:
I think SIFY and REDF and hopelessly overvalued. They will crash as the market will in 2006.
R.G.
Nevada
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