Monday, February 9, 2009

AKAM, AMZN and WY Straddles Analysis

There were some very significant straddle winners in the last 2 weeks. Below you will see some charts that tell the stories.

AMZN (Amazon):

(please click to enlarge)

AKAM (Akamai):

WY (Weyerhaeuser):

This one was bought on Thursday and sold on Friday. As expected, WY reported very large losses. The stock tanked quite significantly initially. The 25 puts, which were bought at $0.50, reached as high as $1.23. Unfortunately I did not sell the puts at that point. I was expecting WY to continue dropping s its results were so bad. The company had an earnings conference call in the middle of the morning, and that caused the stock to recover somewhat. I ended up selling them at $0.75, a 50% gain over the cost of the puts. However, the 30 calls were sold at an 80% loss, so overall the play returned a loss of about 10% (the play was about 3:2 in favor of the puts as we heavily expected a drop in the stock price). Bottom line is to stick to a predefined exit profit strategy.

Incidentally, note below what a investor did on the 25 puts, having bought over 2,000 contracts. A similar pattern happened with AKAM 15 calls.

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