InterDigital Inc (IDCC)

[The Count]

Options are high risk

Joel, you've made a lot of good posts and I have agreed with many of your points. You add a lot of intelligent analysis to this board. One place I disagree is that a buyout is a slam dunk and the bids will be coming quickly. Possible? Absolutely IMO and I am optimistic, but far from a sure thing. Given your belief, your understanding of the situation and options, and the small amount wagered, your option play is absolutely appropriate for you. However when you throw out the 100-1 hoped for result, you may entice others less knowledgeable to make a risky investment that may not be appropriate for them.

Options are speculative investments (unless you are using a hedging strategy). Buying calls in hopes of the price going up is a great way to make a huge killing when it works. However, most retail option traders lose on their trades, often the entire amount invested. Not only do you have to be right about the stock price, you have to time it right as well. If the price does not rise past the strike price by the option date, the option expires worthless and you loss all you paid. You can always sell your option before it expires. There is a time value that erodes as the due date gets closer. You can get an idea by looking at the same strike price with different expirations to see how that works. If you trade, be aware that there are large spreads on the contracts. The Sept 105 calls bid is $1.30 and the ask is $1.65. That's over 20% juice if you buy and then sell. Commissions on option trades are higher too. You can look at the bid of the options with strike prices $5 high and lower to get an idea of what your option would be worth with a $5 move. For example, the Sept 100 call bid is 1.95, and the Sept 110 call bid is $1.05. So if IDCC goes up $5 tomorrow, you could sell for an 18% gain. If it goes down $5 tomorrow, you could sell for a 36% loss. The magic of buying call options is that it is a right, not an obligation, to exercise. You can only lose 100% of what you invest, but the upside is unlimited, 10,000% if it becomes worth 100 times what you paid. If you want to gamble, that's fine, but be aware of what you are doing and don't gamble money you can't afford to lose.

Loop said

Each of us have our own business decisions to make. I respect those that want to take profits as much as those who have decided to stay the course like me. I would prefer that those taking profits not engage in trying to influence others to follow suit because what others do with their shares is really nobody's business but the investor and his family.

I echo that, and stress it even more for those using speculative strategies to make a big score. To miss out on potential gains is bad, but to lose actual money you had is worse IMO. Joel, I know you weren't advocating this strategy for others, however your post made it sound very tempting. I want to make sure people understand the risks and benefits before they make their decision.

Joel, what follows is not directed at you at all.

To those that are bothered by my trying to protect others from themselves, too bad. Everyone is free to ignore me and my posts. I am not here to pump IDCC, I am here to share investing information. My mere acknowledgement that IDCC’s share price may go lower and to assess the appropriate risk level in your portfolio causes great angst in some folks. Nothing I post will affect the share price. I hope it helps a few people who may not be as savvy and all knowing as the "chosen few" make decisions based more on rational analysis than on emotions.