You might think, oh man this stock is so cheap it can only go up! If you think that you are wrong, you will be crushed. Case and point ABK's trading this week, the junk was up over 100% Tuesday. Yesterday she was up another 50% by late morning. I decided to take a shot with her and dance in the 2.50 calls. I bot them for .75c on a great fill on the bid, i sold .80 .85 and .90. I left a few on in case she went higher, she did not. ABK fell almost 65% in a matter of minutes, almost an hour it took. The options in ABK or any cheapie can move 100's of % in seconds..
The massive percentages the stock is moving can really spell disaster for your P&L because: A. the options trade in nickel wide markets, B. the stock is under 5$ and its all day traders flipping the float.
As for my trade, i ended up taking a pretty big loser on the calls, but ended up scratching the trade because i hedge with deep ITM puts. Best advice i can give you if you trade options on these cheapies, trade small size, risk what you can afford to loose.
By Sell Puts
