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June 19, 2009


I can't tell you how many times I have played a backgammon game to near perfection and had an opponent all but polished off, just to see him hit the only pair of doubles that could offer reprieve and then go on to win the game. That same feeling of frustration came to me this week courtesy of an options straddle position I purchased on Pfizer a few weeks ago. With the shares hanging around $15 and consolidating after a large move, I figured the consolidation would either break for another sharp move higher or fail and make a sharper move lower. To express this expectation, I purchased a block of June $15 straddles.

All was looking well a week ago. PFE broke lower and then posted a narrow-range day to set up for another move down that would turn the put side of the straddle to gold. Instead, the shares defied gravity and shot back upward. Where did the shares close today? At $15.00 even. It's not often that one loses 100% on a straddle play. Backgammon anyone?


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