How Time-Value Salvage My BGC Option Trading

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Feb 09 2007
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Option Trading can be fun and relatively easy to make money if you did your research well and apply a simple technique. Well, maybe the word technique is over-used – perhaps I’ll call it check-list condition. It’s of paramount important that you have “TIME-VALUE” on your side – without which the waterfall value-depreciation will eat up all your profits even if the stock price sit idling in a corner.
My latest example would be a good classic case-study. In case you just happened to drop-by at my website, FinanceTwitter for the first-time, I did a option trading on General Cable Corporation (NYSE: BGC, stock) back in Oct-30-2006. You hear me right, that’s more than four months ago. I bought BGC Feb 2007 40 Call just before it announce its’ earning (full website here). It beats earning by $ 0.16 but because it issued a mix-guidance (report here) its’ stock was punished and gapped-down.
It did recovered somewhat but not enough to break-even (I was stubborn enough not to cut-loss because I believe in its’ fundamental). The worst thing (look at the chart) is it didn’t able to break the resistance of $45 and slowly the time-value waterfall started to eat into my premium.

Subsequently the next quarter earning announced on Feb-7-2007 provide much relieve when it reported quarterly earnings after preferred dividends of $35.3 million, or 67 cents per share with revenue rose to $925.3 million. Wall Street expected a quarterly profit of 59 cents per share on $923.9 million in revenue. More than that the company issued first-quarter upside guidance of 75 cents per share on sales of $950 million to $1 billion.

This time there’s no mistake – the stock price shot up after normal market hour and I took this last chance to close the position with a little profit.

# TIP: Always invest with abundance of time-value during your option trading unless you’re willing to lose all or cut-loss depending on the your investing strategy.

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