Bear Sterns (BSC) : Falling from grace

Published on August 6, 2007

Bear Sterns (BSC) : Falling from grace

August 6, 2007

(for details pls visit www.OptionPundit.net)

BSC IVHave you noticed IV in BSC options recently? Attached chart from Ivolatility shows IV profile as of friday close >70%. However, as of now ATM levels are trading above 100%. There may be differences in the way IV is calculated by Ivolatility or ToS. Albeit, it offers great option premiums to play. It has tempted me to open a trade on BSC which is listed as per below.

 BSC 100 Put calendar Here is a directional trade (BSC 100 Put calendar (buy Sept/Sell Aug), debit $3.75/spread) that I am looking at for a very short period and I shall keep on adjusting as it either continue to fall or rise. The breakevens as well as maximum profits are all listed.

There is a watch-out though: BSC should not crash in a day. As long as it is either falling  or rising slowly, I shall be able to make good money. My startegy on this trade is to keep it as delta neutral as possible and continue to add theta.

Disclaimer: I have invested my money into this trade and I know what I am getting into. Pls ensure you understand the risk associated with options or calendar spreads before investing should you choose to do so.

9 Comments

  • Avatar jordan says:

    OP, where do you get the stock price & risk graph which you attached here? Doesn’t look like from TOS.

  • Avatar OptionPundit says:

    The chart is from Optionetics’s platinum software. No need to buy, the same can be created using ToS and a little bit of creativity, but had not time 🙂

  • Avatar OptionPundit says:

    Just when u think that things are in control something like this happens, an excellent reminder of my being as income trader.
    Since I posted the trade, BSC did find a support but then rallied $13!!!

    Beauty of this trade is that, IV has supported even this rally and I am almost flat despite the $13 rally.

    Profitable trading, OP

  • […] I talked about a trade on BSC’s falling from grace. OP’s registered users to forum and blog received this trade alert via e-mail soon […]

  • Avatar OptionPundit says:

    I am now looking at 120 Aug/sept put calendar spread for $3.75 debit roughly. This will increase my break even point to roughly $126.

  • Avatar OptionPundit says:

    If BSC does crosses above 120, I shall be selling my 100 put calendar and pick loss on that one.

  • Avatar OptionPundit says:

    Seems like analysts were able to lift BSC. For past 2.5 trading session it has been pretty strong. $114-$116 is also a strong support area and it has already penetrated that level.

    Though 110 and 120 still are ok, but this position is being at two front- 1) IV for the same reason I started, but now in opposite direction and 2) short delta.

    Well, keep an eye. Profitable trading, Op

  • Avatar OptionPundit says:

    Well, as it turn out, the worst nightmare was here with the BSC. The stock rose over $23 dollars in less than 3 trading sessions, much more than what my income trade could handle.

    The trade is closed completely for a loss of 21%. I shall be posting the details later on.

    Profitable trading, OP

  • […] trade of the month after RUT income trade, this was a speculative trade on BSC that I started here. I mentioned in my post that my nightmare was only it’s either rising or falling too quickly. […]

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