An Experiment With 265 Percent Trading Profit



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May 17 2007
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This trade is perhaps one of the most satisfying trades I’ve ever experienced so far. Not only I don’t have to worry about the time-value decays but I don’t have to keep my eye too much in monitoring it because it’s one of the rare stock which appreciate over the time. I just love the stock price pattern of VF Corporation (NYSE: VFC, stock), which remind me of Warren Buffett whose stock Berkshire Hathaway’s (NYSE: BRK.A, stock) has been defying gravity and hit new high over the time.
I first opened position on VFC back in 5-Feb-2007, about more than three months ago. Back then it was reported VFC were to sell its intimate apparel lines to Warren Buffett Berkshire Hathaway’s (NYSE: BRK.A, stock) Fruit of the Loom for $350 million – a figure said to be low (the stock price was punished) but analysts said the move has long-term benefits due to weak store sales. It however missed the earning estimate by one cent. The stock price didn’t react too violently to it anyhow.
My option was May 2007 80 Call (yes, it’s going to expire tomorrow) so back then time-value was still on my side. The main reason I entered this stock by trading its’ option is purely because of its chart pattern and the fundamental value. By end of Mar, I know I’ve to hold on to this stock and I made a decision to test an experiment. I’ve decided to try to maximize the profit by holding on for the second earning announcement in a single trade. As expected the second earning annoucement on Apr-24, 2007 was a good one – beating estimate by 5 cents. It didn’t gap-up as what I’ve hope for, but I just let it run till today when I entered my desire price which got triggered during the period when I was composing the posts for How to Make Money Scalping GOOGLE Stock. I often use limit-order to stay away from the danger of emotional trading.
The price of May 2007 80 Call back then was $ 2.60 per contract, so it was rather cheap. To make a 265% profit in more than 3 months might not be as good a record to some of the professional investors out there, but I’m happy. So what have I learned from this experiment? If you’re trading option and the trade is deep in-the-money and other indicators are intact, just let it run (even to the very last day of expiration) because your Call option has already lost its’ time-value and the only profit you’re seeing is the intrinsic-value which is huge enough to cushion any sudden drop in stock price.
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Comments

Hi Stocktube,
I find your articles on option trading informative and interesting. Can you write some articles in writing put options which I am currently trading in the London Stock Exchange. Where can I find info regarding earnings and growth stocks in the LSE.

sure klangkrow … i would probably write some on this matter at the later stage … thanx for your idea …

any particular reason why you chose to trade option in LSE instead of NYSE or Nasdaq?

cheers …

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