Back on october 6th, I recommended the purchase of stock in pSivida corp (PSDV) at $4.60 combined with writing the Jan 5 straddle at $2.20. The stock moved up and on October 18, I suggested that you hold the position. Today, there has been another big move in the stock. At this writing, the stock is up 71 cents to $6.59. That is a rise of over 43% in two and a half months. If you also sold the straddle at the time, it would cost you about $2.60 tp buy it back. That makes the package worth $3.99 compared to the original total cost of 2.40, for a gain of over 66% in two and half months or close to 300% on an annualized basis.
I would not fault anyone for closing out this position at this point. It is hard to argue with taking profits of this magnitude. On the other hand, there remains a potential profit of another $1.01 if you hold the position until January expiration on January 22d, provided that the stock remains above $5.00 (which is $1.59 below the current price of $6.59). Obviously, if there is negative news that comes out about the company, you could still lose money, but the stock would have to fall nearly 50% from current levels for that to happen.
My take on this is that if the inivestment is in the speculative portion of ones portfolio, it is worth holding for another month. If it is in the more mainstream portion of the portfolio, I would take the profits.
Disclosure: I am currently long PSDV and am short both puts and calls. I am going to hold the position discussed above.
No comments:
Post a Comment