Monday, August 18, 2014

Unplugged: closed plug

This trade just goes to show that you can be absolutely correct on your thesis but use options  and you still can lose despite  a big move in your favor.  I was pretty bullish on PlUG based on my research of studying its prior mega-move.  I took an options position Sept. 7 calls for .41c going into earnings.  Plug was trading at $5.72 at the time. Earnings were very positive and PLUG gapped up and then faded as I suspected it would given that the beat was in the range of what I had suspected the revenue numbers would land. 

I attempted to get out by putting a portion of my position on the Ask but never got filled.  Thus, to hedge this move I sold 1/4 of my position the Aug 7. Calls.  So although I was partially hegdged I would need a big move to Break even. 

Mathematically that is  just is not a probable outcome for several reasons.  First and foremost, here needs to be a driver (perhaps a new deal would do it but to get 23% move  ($1.40 move on a $6.00 stock) with a big float is going to be tough.  Earnings have already passed, it did catch an upgrade and has not followed through.  The big surprise has already happened. While it will likely build a base it will take more than that to For that reason, I decided to shut it down.

If I had entered with stock instead of options, this would have been a big winner.  I would have certainly sold some of the gap and I would not be opposed to holding the remainder.


The damage:
Sept 7. C
Entry: .41c
Exit. .305c

Aug 7 hedge
Entry: .10
Exit. .03

-.3 R.  A small loss that I was unwilling to let get bigger.

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