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Strategies & Market Trends : Ask DrBob
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To: Drbob512 who started this subject10/1/2000 8:26:12 AM
From: virtualsignal   of 100058
 
If you want to continue to hold these losing positions, consider buying an insurance policy, such as, a put option with a strike price right below its current price. This would help to hedge against additional downside risk.

A profit and loss plan will help you clarify your hedge. Determine the option’s intrinsic value and compare that value to the price of the initial transaction. Ex. a stock price of 40, a strike price of 39, and a put for 2 bucks.

fist column is the stock price, option value + stock value, and effect on your position.
36 (+ 1 + - 4)= -$3
37 (- 0 + - 3)= -$3
38 (- 1 + - 2)= -$3
39 (- 2 + - 1)= -$3 (your hedged from add. losses)
40 (- 2 + 0)= -$2
41 (- 2 + + 1)= -$1
42 (- 2 + + 2)= -$0
43 (- 2 + + 3)= +$1 (back to the road of recovery...)

Note up comings earnings and use strikes around these dates.
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