This morning we purchased some July 2006 $20 put options on Corning Inc. (GLW) for $0.60. It was an exciting morning with a 50% gain in 3 hours, but the bid price settled back to the purchase price by end of day. We purchased this a day after 3 red arrows (phantom arrow on the stochastics) on more than double the average of volume, in a downtrending industry group with a bearish sentiment on the overall markets. However this trade turns out, these are exactly the types of trades we are looking for, where the short-term momentum according to the technicals is congruent with the trend of the industry group, overall markets, and state of the company fundamentals (medium/poor in this case.)

In selecting this particular option, we learned to use the delta parameter in a linear approximation to how the option price changes with respect to the underlying stock. As such our ROI calculations are more accurate since now they can take into consideration the time value rather than just the intrinsic value of the options. Soon we will break out the pad and paper and use the gamma parameter to calculate option price acceleration.