1) Yahoo, a historically volatile stock, bottoms out and then
trades through resistance of a downtrend in mid-August 2003.
2) Yahoo then trades in an uptrend from a price around $33.00
in late August out through January 2004 with a price high of
$46.00. This represents a 40% increase in 4 months.
3) During this uptrend, Yahoo had several gap openings which
are considered very volatile events. There are 3 of these gaps
in October 2003 and 2 in November 2003.
4) Further, Yahoo has many large intraday range days. This also
points to a higher level of volatility for this stock.
5) This uptrend that Yahoo trades in has a wide range. The stock
fluctuates widely from the mid-line of the range. Again, indicative
of higher volatility.
Conclusion to these option trading tips: Yahoo offers the investor
a good upside opportunity. However, in a stock as volatile as
Yahoo, there is also large potential for loss also.
The best option trading tips
I can offer here is a maximum protection
strategy. Under these higher volatility situations, the collar
would be better then the protective put because of overall cost.
Good option trading tips for trading a stock with such high
volatility are that the investor must be aware that option premiums
will be expensive if not prohibitive. The collar gives the investor
the needed downside protection at a much lower cost (due to
premiums received from the sale of the call) while still allowing
room for capital appreciation.