Quote: (07-24-2012 09:58 PM)Arbiter Elegantiae Wrote:
In situations like this, where a company is likely to either go bankrupt (in which case the share price would go to zero) or bought out (in which case the share price would go up significantly), a good way to play it is to set up straddles- that is, buy a call and a put both at the same strike price. I have some January 2013 straddles set up at a strike price of $1.50, and calls and puts for NOK are priced now such that it's virtually guaranteed that the straddle will make money before expiration. There is very little chance in my mind that NOK will be priced much near $1.50-$2 toward the end of the year- the current share price is temporary and will be either significantly higher or lower by the end of the year. Also, gold and silver have both been forming descending wedges over the past few months and look ready to breakout soon- straddles are ideal for profiting from this situation as well.
Options are the best way to get into a stock you might want to hold. And straddles are the best strategy when expecting a big move one way or another. Another great thing about options is the margin and volitility associated with both. Great way to make money and also preserve capital at the same time. Of course do not attempt if you know nothing about the options market. Naked strategies is what blows hedge funds and banks up every year.
I like the straddle idea on Nokia, but other than that I personally would not invest any money in the stock itself.
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