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Strategies & Market Trends : Continuing the IFMX discussion and more...
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To: Melissa McAuliffe who wrote (188)9/13/1997 1:15:00 AM
From: Robert Graham   of 206
 
The safest way to take advantage of the oncoming drop in the stock is to write call options on your stock at the peak and buy back after the drop is finished to lock in the profit. Shorting is risky when stock is in a major move up because if you are wrong on your timing, you get to place more money in to cover yourself thereby risking more money in the short. Stock like this at 10 does not have to rise much in order to increase in value substantially in percentage terms. A move to its resistance at 12 is a 20% increase.

Buying puts is a possability but then you may end up with stock while its moving down which IMO is not a good place to be, but if you play it right you can cover yourself before this happens. I have never went this route to make a play on a drop of a stock. Still, IMO this is a safer way to go than shorting the stock.

Still, writing CCs is the safest way to go. Write the CCs one month or so out, like OCT calls. In this way, after the drop in price, you still make money with the quickly eroding time premium. Stick it to the call buyer both ways. Of course the feasability of this apporach depends on what your cost basis is with your IFMX stock.

By the way, missed profits are better than lost money. Wouldn't you say? ;)

Bob Graham
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