Tuesday, April 25, 2006

Oil Puts Overpriced. Totally.

Doesn't take much analysis to figure this one out. Granted, alot of Oil companies are reporting earnings within the next two weeks and that pumps the vol. However, does the market really expect a bad Oil quarter?

HYDL is a decent case study. Good earnings and the stock is off about 8%. Common with earnings driven by a commodity sector. My bet is any further decline will be driven by Oil prices (I am a temporary bear) and any such decline will be short-lived at best (I am long term Oil bull).

Look at EOG 65 line. Front month puts are offered at 0.65 with the next strike down covering your short for 0.20. Lots of other examples as well.

Having said all this, I'd be much more excited if a long call opportunity presented itself. I think it will, but not just yet.

Cheers,
/Dmitry

2 Comments:

At 11:22 PM, Anonymous Anonymous said...

I'm new to options. Detail this a little more for me if you don't mind. You are suggesting (at the time anyway) that one could do a bull put spread here? So sell the 65 and buy 60 to cover?

Thanks!

 
At 11:30 PM, Blogger vaughny24 said...

New to options so if you have a moment please detail this a little more for me. If I read correctly, you are suggesting a Bullish put spread? So one could sell the 65 put and buy the 60 put to limit exposure and most likely collect some premium due to the high IV?

Thanks

 

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