On October 6th, I suggested the purchase of pSivida Corp (symbol PSDV) at $4.60 combined with writing the January 5 straddle at a combined priced of $2.20. As of now, the stock is up to $6.00, a rise of over 30% in eight days. Because of the big move, however, the bid-asked spreads on the options have widened, so it is difficult to get an accurate price for them. While some may be tempted to close this position and take some profits, my recommendation is just to keep holding the whole thing. If you got into the stock and options when I recommended it, you will earn a return of over 350% on an annualized basis if the stock just sits where it is until option expiration in January. Indeed, even if the stock declines by 16% between now and January expiration, you will make the same profit. Obviously, pSivida has been a very volatile stock, and I normally would be infavor of taking some profits from the big move. The return here is so high, however, that staying the course seems the wise thing to do. the rise in the stock price has been accompanied by a huge increase in the daily volume, an indicator that usually means rising institutional interest.
Disclosure: I am holding my own positions in pSivida and have no plans to take profits on them. I would only close the positions were the option premiums to collapse so that I could get most of the expected final profit or if the stock exhibited sustained weakness.
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