MER Chart – Collar stock options advice Example #4

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MER Related Stock Options Advice

NOTES ON Merrill Lynch (MER)
Collar Stock Options Advice

1) During this viewing period, Merrill trades in an uptrend from late June 2003 at a price of about $45.00 through January 2004 with a high around $60.00.

2) This is a wide trend with some intra-month ranges as much as $5.00 and $6.00 wide, indicating a volatile trend.

3) There were a few gap openings early on in the uptrend during July, but we also want to look at the large intra-day ranges, displayed by the length of the daily candles.

4) The stock also deviates frequently from the mid-line of the trend and although it stays within the trading channel nicely, this still is a volatile trading pattern.

Conclusion to this stock options advice: With volatility high, option premiums will probably be expensive. What you should take away from this stock options advice: the investors should look to obtain maximum protection, but the protective put would not be the best choice.

Although the stock is very volatile, the uptrend is not a steep one. During the observed period of 6 months, the trends mid-line capital appreciation is only a little more than $6.00, not much compared to many other stocks during this period. With the high volatility, the price of a protective put for any length of time would quickly eat away any profits from the stocks’ rise.

After taking this stock options advice into account, you should realize that a collar would allow the investor the protection needed, at a reasonable and warranted cost, to justify the potential reward of the capital appreciation.

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