Got Milk? How Priceline Milked Me

by Jeff on February 17, 2010

All weekend long I was thinking of PCLN – maybe I shouldn’t have. I was up $355 last Friday. The market opened on Tuesday and I immediately lost $150, and it kept going down. Couldn’t get my jaw off the floor! A quick check showed me that the volatility of my short FEB Calls and Puts almost doubled. The result is that they were worth almost as much as I had sold them for almost a month ago and climbing fast. Seems the whole world was playing this game and causing extreme volatility. Not a game that I particularly like or want to play – mainly because I don’t know all the rules and don’t have the proper equipment (ie vast capital). Turns out a few hours later I was down to zero gain and by the time I could pull the trigger I actually ended up with a $100 loss!

Lesson learned and reinforced by FSLR. Similar situation with my Bear Call. Sure it’s expiring this Friday and sure it’s still OTM, but because of increased volatility it cost me $266. Expensive lessons, right? What is the lesson? If you think volatility is going to increase you better be long options, not short!

March Expiration

I wanted to open a bunch of trades of Tuesday, but I was pretty busy with personal stuff – I also didn’t like the bullish market conditions. I did, however, enter a MAR 210 Bull Put on Master Card (MA).

Conservative Account

I opened a Buy/Write on Nokia (NOK) on Tuesday with shares at 13.00 and APR 14 Calls at .28 for a cost basis of 12.72 and a sweet 9.1% gain if ITM at expiration. If it’s not ITM, I write more Calls and wait for the annual dividend in May of (hopefully) $0.50. After that, I won’t care to own it any more since I would have to wait another year for the next dividend. But, if it’s still making me good money, then I will do what is best for income.

I rolled NYX from FEB 26 to MAR 26 for a total $207 credit just before the close today. I can wait a while before acquiring the stock since the Ex Div date is still a few months away (probably in June).

I am not happy with my Duke Energy (DUK) Naked Put. Volatility has dried up and there is no premium in any Calls for several months out. I will probably close (buy back) those Puts for a small loss tomorrow, then look for something else.

I’m still waiting for AT&T (T) to get back to around $26 so I can write Calls on that. I don’t want to do anything that is below my current cost basis ($26.24).

◄ Jeff ►

Tagged as: bull put spread, buy-write, buywrite, expiration, Volatility

  • gbusticz
    I got hit last year by PCLN during one of the earnings months. I had traded a butterfly and the volatility just kept on going up before earnings even though the price was well within my wings. I then decided not to trade it during any earnings month. I have been profitable with this stock since then. Getting long when volatility is going up may not necessarily help. If the price does not move you will be fighting with theta and delta.
  • I have used straddles in the past for PCLN earnings - and those worked out well. I have heard from more than 1 professional to just get out of current month holdings the week before expiration, or roll them out. That's what I did with every other position I had except PCLN. It was greed and nothing else. Shame on me!

    ◄ Jeff ►
  • Bruce
    I too suffered the milk of Priceline's unkindness. More so of giving back profits than capital loss. But it sort of makes you feel dumb to say I was bullish on Priceline and lost money in a week that the stock is thru the roof.

    The lesson for me is listen to conventional wisdom and dread very careful the week of option Friday and stay the heck out of earnings with calendars.

    But the part that really bothered my was the lack of liquidity. I could not clear deals near the midprice which is usually no problem for me on TOS.

    I am on to Mar/Apr calendars which I hope to close in three weeks. I have opened an AAPL 210 call which may morpth into a dble since AAPL seems to be favoring the 200 realm.

    I also have a 620 Mar/April Call RUT calendar. I wrestled with SPY and SPX, but felt that RUT was a better choice especially for commission structure.

    Jeff let's pledge to learn from history and not be doomed to relive it. The Greeks rule and we need to better understand them.
  • Speaking of TOS and mid-points... I have found that when volume is down and I am selling, I can get the mid-point frequently. But when volume is high - say expiration week or earnings - and I want to buy (or buy back) I have to give in and move closer to natural.

    Although I lost a few bucks on PCLN, it has been good to me in the past. This was a lesson and thankfully it wasn't too costly (if I don't count the apples I didn't have).

    See gbusticz's comment. This is a very good comment string.

    ◄ Jeff ►
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