stock props at bodog

[Jordan]

there are two new business props at bodog that caught my eye.

Bet On: Will Apple Inc.'s stock (AAPL) close with a value of 110 or more in 2006?
yes -110
no -130

and

Bet On: Will Google Inc.'s stock (GOOG) close with a value of 540 or more in 2006?
yes -120
no -120

i think the AAPL is a clear "no." it's true that the stock is on a heater... yes, but asking it to increase by 22% in a little over a month is asking too much.

the GOOG prop is more interesting to me, i feel like i should either be betting "NO" or buying call options like crazy, and i don't know which i should be doing. any thoughts?

[dankhank]

i like the apple one too

[TomG]

too bad the max win on the apple bet is $50. i was ready to bridge jump my bodog bankroll on that prop. free money!

[laserboy]

Thanks for the heads up.

I think the most comparable options trade to this prop bet would be selling calls, which is basically selling someone else the right to buy a stock from you at a given price at a future date. To determine if you were getting a good value, you could compare the two.

For instance, the current market price of the Dec 06 $540 GOOG calls is $3.70. To "win" $50, you would have to sell 14 of them (14 * $3.70 = $51.80).

For the Dec 06 $540 calls, selling 14 $540 calls at 3.70 each:
Win $51.80 if the stock finishes at <=$540 (14 * 3.70)
Lose $18.20 if the stock finishes at $545 (+$51.80 - (14 * (545-540))
Lose $88.20 if the stock finishes at $550 (+$51.80 - (14 * (550-540))
Lose $158.20 if the stock finishes at $555...
etc...

For the prop bet, betting $60 to win $50:
Win $50 if the stock finishes <$540
Lose $60 if the stock finishes >=$540

I'm with you on the AAPL bet, but I think I will pass on the GOOG bet.

[whipsaw]

I'm in for 65 to win 50. I <3 bodog props.

[knicknut]

AAPL's implied vol in the options marketplace right now is less than 40

40% * $90 * sqrt (25 trading days / 250 trading days) = $11.4

That puts this move $19.7/$11.4 = 1.72 standard deviations. That corresponds to a 95% chance, to break even we need 57%. Easy money. (The percentage is slightly less than that because it's any trading day in 2006, not the end, but there's still tons of value.

If you want to see it another way, those $110 calls are selling for less than $0.05.

[knicknut]

By the same argument, Google's is about 52

52% * $500 * sqrt (25/250) = 83.7

31/83.7 = 0.37 SD

~ 64%. Still value at -120, but I'll pass.

[mts]

took a swing to -300

you can win yourself another 50 bucks though

[Jordan]

just put $85 (the max) more on at -300.

[mts]

my max is 150