Option Purchase and Sell of AEQRU

Been lagging in updates due to a small vacation. Last Thursday May 4 we purchased Adobe Systems Inc (ADBE) June 2006 $37.50 put options at $3.10 a day after the company announced lower expectations in Q2 results. At the time ADBE had heavy volume on 3 red arrows:

adbe6.gif

Today in mid-day we sold the options at $3.65 for a 17.7% gain in 2½ days. However it seems we sold too early. ADBE had a strong support at $34 for the past few days; see first image below for a 5-day view. Since we were already up with a healthy profit, and didn’t want to risk a pull-back, we sold. Part of the speculation was that the news wasn’t very strong — it wasn’t like the actual earnings were posted as it was for the Motorola option play. Part of what gave the impression of the strong support was the scale of the 5-day image — when the chart includes the large jump that produced the sell signals, it also scales the graph so that other fluctuations seem small. This is a pattern to learn from.

adbe5.png

Leave a Reply

You must be logged in to post a comment.