I think I paid to much for the bottom half of my double calendar on PALM. The net was 0.40, but I paid 1.64 for the short option. This is a killer. I ran it thru my spreadsheet ( that I made after I traded ) and I see where the risk is. It is actually a directional trade. Historical volatility is 30.48 %, implied volatility is 50.77 right now. I see support at 16, resistance at 17.5 for the next three weeks.If the IV drops, I am screwed. But if there is more speculation or an actual buyout offer, I am golden.

Last Tuesday the stock moved up on speculation that there was going to be a buyoutin part because Chief Financial Officer Andrew Brown cancelled a planned presentation at the J.P. Morgan Chase technology , later that day, Palm issued a statement about the change of plans, that Brown, who has back problems, yada, yada, yada.

I am underwater right now and theta over a long weekend won’t save me. The volume was zero in the 15 puts, so I didn’t want to get into a thinly traded option, knowing how hard it is to get out. I didn’t follow my own rules ….. Double calendars work best in a low-volatility environment and Double diagonals work in both low- and high-volatility environments. I think I might roll it into a double diagonal if I can.

They reported Q3 FY07 results last Tuesday, so I do not expect any surprises. This is a long weekend , so everything is closed so I think it is all good.

Related posts:

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2. The “Weekend Theta” Trade Doesn’t work. Sorry. In my last post, I mentioned...
3. NAL , again This is the last time I will write about NAL...