Wednesday, December 20, 2006
I wrote over the weekend about huge option premiums in Newfield Labs warning of a big move in either direction.
I did not know anything about the company or what was in the pipeline just that the option premium was stupid big, warning of something.
I have written a couple of times in the past that looking at the options market, even if you are not an options trader, can offer some utility.
I think NFLD's thing was a blood substitute. Well who wouldn't warm up to that kind of product? I know I would be a sucker for that kind story, I love a good story.
The premiums chronicled over the weekend were saying something. As I really knew nothing about the stock but the options premiums were saying something to people that would listen. My take was to stay away. My guess was not a big drop, my guess was a big move. Guessing that there could be a big move was easy based on the premiums. This was a great lesson for how useful options can be, again, even for people that don't trade them.
The chart may be tough to see but it captures the stock's decline in the last few days. Something like this will happen again and again. When it does, heed it.
Posted by Roger Nusbaum at 8:05 AM