Just now I revisited an old friend, Human Genome Sciences. As early readers may recall, it was among a half dozen or so developmental drug companies I own(ed) and wrote options against.
When they run away, as both DNDN and HGSI did this year, I bid them farewell, and move back to the cheapies. After all, when I’m selling covered calls, my bank account doesn’t care about stock prices, only percentage return. And low dollar price stocks tend to have the highest implied (and actual) volatility on their options.
But today I bought HGSI and wrote July 25’s against them. The options have 49 days (seven weeks) to expiration, and sell right now for around $2.25, even though the stock is selling just under $25. On a net basis, that’s double digit return in 49 days if the stock just recovers to its trading range of the past six months or so.
More to the point, three of those days are about to disappear into a long holiday weekend. And then it will happen again around the July 4th holiday. I expect that traders will only really be paying attention roughly 30 trading days between now and then, so there’s not nearly as much time for mischief as most seven-week blocks provide.
The only other time this happens is from mid-November through the January options expiration, when there are three national holidays distracting people and eliminating trading days over a 10 or 11 week period. However, you have to consider year-end effects, especially with stocks that have moved up or down sharply over the course of the year, because investors may be doing things for tax purposes or for reporting purposes (mutual funds) that screw up ordinary supply and demand.
Just a thought, and some solace for not getting a couple thousand more shares of Elan the other day when it was trading under $5.15 a share. I did write the June 6’s on one of the other lots of recent ELN purchases, and expect I’ll get the chance to write the July’s as well.
Happy holiday weekend, all. I have a couple more posts to put up from thoughts earlier this week. My blogging got short shrift when other stuff came up, but I stayed just as angry, amazed and aware as always, alliteratively speaking.