V.K. Short 100 MSFT @ $136 and Buy 5 Nov135p @ $5.25
I can understand the Put buying, but why did you short it? Here is what I see with your initial investment of $2,625 ($5.25 * 500) in relation to MSFT's share price next week:
Drop 10 points to $126, total profit = $3,875 (147%):
Short profit = $10 * 100 = $1,000
Put profit = ($11 - $5.25) * 500 = $2,875
(Nov135p price next week approximated by Nov145p today...)
Drop 5 points to $131, total profit = $1,750 (66%):
Short profit = $5 * 100 = $500
Put profit = ($7.75 - $5.25) * 500 = $1,250
Rise 5 points to $141, total loss = -$1,562 (-59%):
Short loss = -$5 * 100 = -$500
Put loss = ($3.125 - $5.25) * 500 = -$1,062
Rise 10 points to $146, total loss = -$2,625 (-100%):
Short loss = -$10 * 100 = -$1,000
Put loss = ($2 - $5.25) * 500 = -$1,625
Your short increases your profit if MSFT drops, but it also increases your loss if MSFT rises. What makes it worse is that if MSFT makes a HUGE rise, say $15, then you would lose HUGE as well. Wouldn't it be safer to stay with just buying puts?
Yikes |
