Replies to post #55348 on Ariad Pharmaceuticals Inc fka ARIA

[trading_cyclist]

Are you seriously asking for investment advice on a BB??

[nsomniyak]

I actually am holding a few Jan $4.00 calls myself, so your post is actually quite relevant to me.

I see no reason to do anything with them right now. They are well in the money so there is little time premium on them, which means there is little time premium to erode in the three months to expiry. There is a little more time premium in the 4.50s of course, since they are less deeply in the money, but not all that much either.

In general my plan is to hold them and see how the next 3 months play out for ARIA. I would definitely sell them before expiry as I really don't want to ante up the capital to exercise them (that was my original point - to buy in the money options instead of common for leverage). At that point I might buy in the money calls further out on the calendar to replace the ones that expire in January.

If I do such a roll-out I probably would try to do it in two separate steps rather than as one net transaction. I would try to sell my January on an up day for ARIA and then buy further out (June or July? would need to see what was out there at the time) in-the-money calls on a down day for ARIA. Obviously in-the-money calls track the stock closely, so this means selling high and buying low, but there is a further effect due to the speculative nature of options.

I might sell the January calls late November or early December for reasons that don't relate to ARIA, for example if I see some tax-sale bargains out there and need to raise cash for other purchases.

[lax20m]

Personally I'm not a fan of buying options for leveraging investment returns. However I sell options quite frequently. I view the premium much like the house advantage at a casino. You are in a much better position, in the long terms, if you are receiving the premium as opposed to paying it. Which is why infrequently sell covered calls or sell near the money short term puts for purposes of collecting the premiums.

With that being said, and it shouldn't really matter, but are your options more or less a valuable than when you bought them? This stock is a waiting game. Buying options is a big gamble because you don't know when the big payout will occur, if ever. It really is a hard question to answer without knowing your appetite for risk or expectation for ariads future stock performance.