Monday, April 12, 2010

Ultimate Shoulda, Couda: PALM

Ever since I started this blog one year ago (almost exactly one year ago), this is by far the biggest miss I've ever had.


How big of a miss? I could have bought PALM's April $5 call option at $0.02 a piece - 2 cents!!!!!, and it would have become $1.04 a piece in 3 short trading days. That's 5100% gain!

At one point on today (Monday), this option was traded at $1.30 a piece. 6400% gain.

What's most infuriating thing about the whole episode is that I DID OWN THAT OPTION.

I bought that particular option when PALM tanked after the company released its earnings. I thought it was an overreaction, particularly when analysts started to say things like "The only option left for that company is to declare bankruptcy" or "The target price is Zero." I thought, gee, I remember when they said those to LVS or C, and look what happened to them...

So I bought April $5 calls at 30 cents a piece. Then PALM took a double dip the next day, and it just languished below $4. The option price dwindled, as time premium decreased each day. I left them for dead, as it was a tiny position, not even worth selling to recoup the cost.

One day before the stock jumped on the takeover rumor, I looked at the option in my portfolio: $0.02 a piece. I thought, well, if I add the equal number of calls at this price, then my average price would be $0.16. Or, at this price I could buy 100 of them and it would cost me only $200.

Nah. Why throw money after a dead cause? I didn't.

Then the next day the stock jumped. 2 cent option was suddenly worth 16 cents. The next day it went sideways. Then on Friday it jumped again, and my option was IN THE MONEY! I couldn't believe it. The option was now worth 50 cents. I sold.

WHY DID I SELL? I had been totally willing to left the options for dead, meaning I was willing to lose all. But the moment I saw it in the money, that willingness just evaporated.

But then, WHY DIDN'T I WAIT TILL MONDAY? Today (Monday), PALM jumped another $1.

If I had bought 100 of this call option at 2 cents when I could, that would have turned into $13,000.

I just want to throw up.

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