Option Investor

Position Exit/Adjustment - NTES

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The bullish momentum in Netease.com (NASDQ:NTES) continued Tuesday with the issue soaring higher at the open as investors poured additional cash into China Internet stocks. Our sold call at $50 is comfortably "out-of-the-money" however that condition appears likely to change in the coming sessions. We noted last week that traders should initiate a strategy to "lock-in" profits in this position and today's strong upside move provided the necessary catalyst to exit the short option (MAR-50 call) in the spread. The cost was slightly higher than we expected at $0.35, however there is a small premium in the MAR-55 call to make up for some of the closing debit and that amount may increase slightly as the stock moves higher. Traders who have a more aggressive stance should consider using a "covering" order, based on the price of the stock, to limit potential losses in the short option while allowing the original position additional time to achieve a profitable outcome. This technique is outlined in the "Strategy Review" posted on 2/15/05.

MCM Staff

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