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Trade

Sold to Close 4 contracts of DD AI at 0.30

Moose posted on 01/07/08 at 04:54 AM (Note posted about 9 hours after the trade)

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DD AI 0.04 0.00 [0.0%]

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Users Bought (30 Days) 3 (100%)
Users Sold (30 Days) 0 (0%)
Market Cap 31.19B
52-Week High 35.35
52-Week Low 16.05
10 Day Volume 6.98M
P/E 46.76
EPS (Trailing 12 Mos.) 0.75
1Day 5Day 1Mo 3Mo 6Mo 1Yr

Transaction: Sold to Close
Symbol: DD AI
Quantity: 4 contracts
Price: $0.30
Value: $120.00
Stop Order: No @ $
Target Price: $
Getting out of Dodge while I still can get a little something for this...
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Posted by Moose on 01/07/08 at 04:54 AM

Tag It | 1 user tagged it: Options, Huge Loss, DD

Comments

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User Avatar TradeKing Staff Member

NicoleWachs

Member since: Jul 07
Trades Not Shared
Trade Notes 0
Blog Posts 20
Director of Education for TradeKing
Age: 30's
Boca Raton, FL UNITED STATES
NicoleWachs
Posted January 09, 2008 (04:26AM)

Hi Moose,

In your reference to bouncing higher off of the 52 week low, it sounds like you were using some technical analysis. After using TradeKing's Recognia tool, it looks like this stock has been in an overall downtrend since 7/24. Some would call your entry trying to "catch a falling knife." Sounds painful, huh? Many technical traders will get in later after they feel a bottom has been reached and the chart is starting to move higher with some confidence. Only then may they be willing to take a bullish entry. Once logged in, you can learn more about this by going to Quotes+Research > Technical Analysis. Please keep in mind, that even with confirmation, the stock may go lower.

You may also have taken a larger loss due to time decay. Even though your option was ITM when purchased, it looks like only slightly, making this behave more like an ATM option. Coupled with buying the front month (earliest expiration) and a holiday in between your entry and exit - all three things add up to losses in addition to the stock going lower. Brian Overby has a great blog entry explaining this. Click here to read more about time decay/theta or follow this link: http://community.tradeking.com/members/optionsguy/blogs/2104-understanding-theta-ii

On the upside, you recognized the situation for what it was and recouped whatever premium you could. This saves capital and restores morale by taking action. It is rarely worth holding the rapidly decaying option in the hopes of a stock comeback. Good job!

Before you place your next trade, formulate where you would like to exit for a gain, but also where you will cut off a loss. Have both a stock price and an option price in mind. It is always easier to compose your thoughts before your trading capital is on the table.

It's easy for me to be Monday Morning QB, but I hope these comments will help on your next trade.

This comment and any market data included here was prepared on 1/7/08.

-Nicole Wachs

Options involve risk and are not suitable for all investors.
Please read Characteristics and Risks of Standardized Options .

While Theta represents the consensus of the marketplace as to the amount a theoretical option's price will change for a corresponding one-unit (day) change in the days to expiration of the option contract there is no guarantee that this forecast will be correct.

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