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NEW : Welcome decline

Published on March 9, 2007

NEW : Welcome decline

March 9, 2007

I have been buying put positions on this ticker, NEW. The troubled subprime guy. This company, engaged in subprime business is heading towards bankruptcy. And with my experience of Enron and Worldcom, I wanted to take advantage of this decline. 

Now let’s begin with the big picture, look at the chart below, how quickly it has been falling, will you dare short it or go long, kinda risky isn’t it? The 2nd chart is how it behaved in past few days. Because of the downgrades and Subprime being in news I wanted to benefit from it’s decline. The day i bought, next morning it jumped by 20%, doesn’t that say…oouch as put were down big time! But hold on. That day also it clsoed lower then opening price.

 screenhunter_43.jpg  screenhunter_45.jpg

All the while I kept on adding positions (pls note this purely speculative play and don’t risk it unless you really understand what’s at stake). I was waiting for it to fall below $5 (a phsycological barrier and also it will become a penny stock and many funds will walk out as they can’t spend invest in pennies due to restrictions). And see for yourself what happened.   screenhunter_42.jpg 

This is what I was waiting and therefore I was monitiring more than usual tickers. And then…yes it was my day to gain huge % points. I still have some more positions that I will unload today. But it was a faboulous day.  I didn’t send this trade via alerts to OP registered users as this was a very risky play and i didn’t want you to lose money should you decide to invest and it goes wrong as the volatility was very high.

I shall post transaction details later, till then stay tuned, OptionPundit

2 Comments

  • Avatar YukTrader says:

    Nice play…I was looking at those as well but didn’t have the stomach…I.V. just outside of my risk parameters…YukTrader

  • Avatar OptionPundit says:

    YukTrader, Thanks. In fact yesterday it dropped further to give me results over 100%. It’s good you followed your trading discipline and didn’t enter. From option’s investment point of view, the options are very expensive on this.

    I played straight put. Reason is “experiecne” with bankruptcy prone tickers. I had lost in Enron and worldcom, but during that time I tookaway some lessons and understood how underlying behaves once they are prone to bankruptcy and hence the reason for playing NEW otherwise my most trades are income trades.

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