YAHOO Chart – Collar Option Trading Tips

1) Yahoo, a historically volatile stock, bottoms out and then trades through resistance of a downtrend in mid-August 2003.

2) Yahoo then trades in an uptrend from a price around $33.00 in late August out through January 2004 with a price high of $46.00. This represents a 40% increase in 4 months.

3) During this uptrend, Yahoo had several gap openings which are considered very volatile events. There are 3 of these gaps in October 2003 and 2 in November 2003.

4) Further, Yahoo has many large intraday range days. This also points to a higher level of volatility for this stock.

5) This uptrend that Yahoo trades in has a wide range. The stock fluctuates widely from the mid-line of the range. Again, indicative of higher volatility.

Conclusion to these option trading tips: Yahoo offers the investor a good upside opportunity. However, in a stock as volatile as Yahoo, there is also large potential for loss also.

The best option trading tips I can offer here is a maximum protection strategy. Under these higher volatility situations, the collar would be better then the protective put because of overall cost.

Good option trading tips for trading a stock with such high volatility are that the investor must be aware that option premiums will be expensive if not prohibitive. The collar gives the investor the needed downside protection at a much lower cost (due to premiums received from the sale of the call) while still allowing room for capital appreciation.