The Texas Challenge Trade

Underlying Asset: Microsoft
Underlying Asset Ticker: MSFT
Option Type: Call
Option Strike: $30
Expiration: May 2007
Quantity (Contracts): 10

Buy Date: 04/26/2007
Purchase Price: .32

Sell Date: 04/27/2007
Sell Price: .82

Net Profit (not including broker fees): $500
% Return: 156%

Cumulative Net Profits: $550

Comments:

I purchased this call option the day they were going to announce earnings. They were announcing earnings after market close, so I purchased these calls first thing. The stock didn't do a whole lot that day during normal trading hours, but the calls jumped in price (from .32 to .50) without a movement in the stock in anticipation of the earnings report. Obviously they reported strong earnings and the stock went to about $30.50 in after-hours trading. I held the calls for a while. The stock went to a high of around $30.70, where the option priced at an even $1.00. I should have bailed at this point. My exit was .95 but I was getting a bit greedy and hoped I could turn an even $1,000 profit on this trade. The stock sat at this level for a few minutes then sharply declined by 20 cents. I waited a while to see where the new "peak" would be at. I sold at this "new peak" for .82. Not a bad trade. I had figured that there would not be a "run on the stock" like what was seen with Amazon. I had guessed the stock would hit $31.00 - $31.50. It still could on Monday but I went ahead and took my profits and ran. Not a bad trade. I'm behind on the challenge and need to start bringing in some more profits.