On the comments area of my Bullish on Google post, I got a question from loyal reader, SD:
For perspective, on a trade like this which particular calls would you likely buy and what percentage of your capital would you risk on the trade? Thank you.
It's funny....I used to not answer that question, when I was running money and writing my blog on TheStreet.com. Options aren't nearly as liquid as stocks and I'd often be writing about my ideas and trades in real time as I'd be finishing up getting an order filled and it'd be doing a fiduciary mis-duty to my partners were I to send readers to bid up those same options as I'd be trying to finish up the order. Even writing the ideas at all, I suppose, risked costing some performance if there were ever enough capital liking whatever idea I'd written about and then randomly picked exactly the same options I'd been bidding on...paranoia will destroy ya'....but let's get back on focus here...and, this wasn't funny, btw, Cody.
As far as the options I'd have been looking at today -- I'd probably want a couple quarters of time here, some sorta deep in the money, others slightly out of the money calls...looks like we've got the September 400s for our in the money call idea. And we've got the September 550s also, for our our of the money idea.
And how much capital? Maybe 1% or 2% or so if I were in a typical aggressive mode, or 1/2 of 1% were I more cautious for whatever reason.
When it comes to common, maybe 5% or so into a single common stock position sometimes and sometimes more than that, though not often.
How's that for a firm answer? There's a reason for that.
I'm answering this question from the perspective of what I used to do running aggressive tech money. I'm not sure there's any "right" way to allocate capital. On any scale, really, whether talking about the rich college kid risking capital to learn to trade or the 30 year old Silicon Valley surfer tech dude or the 50 year old housewife, much less the fund of funds, the mutual funds and other institutional money.
Google's a high beta (meaning it's more volatile than the market -- click here and look halfway down the right side of the page and you'll see "Beta: 1.71", which simply means it's 1.71 times more volatile than the market usually) and options are always risky since they expire after a while...so any money betting on this stuff is wildly volatile at times. Any money that's being bet on options and stocks is going to be at times, of course.
Take this post, as you should all of these, as education, not advice. I'm just trying to call it like I see it and feel it. All of which underscores why I keep saying it's easier to be bullish than long.
Then again, I'm gonna log off and watch some TV now. Which, I suppose is work, since I'll be studying talk shows and will study tonight's Happy Hour later too. Always under pressure.