Monday, May 22, 2006

Bought BHP Billiton (BHP)

I took a gamble this morning and bought BHP Billiton (BHP) June 40 calls @2.00, or when it was trading around 40. Commodities are still in a long term bull market, and what we're seeing right now is 1987. In 1987, after a sharp drop, tech stocks rallied back until it reached an insane peak in 2000. I expect the same sort of pattern for commodity stocks.

May 23, 8:15am. Update: Sold BHP for close to 100% gain. Although today is an up day, I don't feel comfortable holding in this environment.

Bying options in this environment is hard. Not only do you have to identify good stocks, but you also have to identify stocks whose Implied Volatility (IV) is not that high. Because if the IV is high, you're getting ripped off on the premium.

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