The other day I commented on a recommendation from TV about buying Mastercard (MA), then around $255, and selling the August 270 call for $12. The commentator viewed the earnings report that came out yesterday as a potential (positive??) catalyst for the stock.
My comment on Tuesday was;
Big call premiums are often a siren song that some cannot resist. One observation I would make is that often when there are big premiums, the premiums are big for a reason.After the segment on Monday the stock went up to $270 on Tuesday and then worked lower the rest of the week, it got as low as $225 on Friday before closing at $237.
The action of this past week shows that the stock could easily trade back above the $255 where the stock was recommended or even above the $270 strike price. As the title of that Tuesday post suggested that was a lot of
That the stock so quickly moved beyond the amount of the fat premium as I suggested as being possible does not represent any sort of knowledge about the stock or its earnings but very simply this is a frequent occurrence in these sorts of situations. It will repeat many times over.
Buying a stock because it has a lotta option juice is probably the wrong way to come at this. If a stock you like has a lot of juice and you want to take advantage of that, ok, you are coming at it from owning the stock and selling an occasional option as opposed to saying to yourself ok, where can I find some juice.