Hi Lynn,
re buying puts...
Before I start, mandatory disclaimer: I am in no way licensed, certified, accredited, or trained to give advice about the market. In fact, the only training I've had has been very expensive experience.
To begin with, the previous answer gave you some good advice, read McMillan first. You could profitably invest some time in the SI options threads:
"Option Trades" Thread
Subject 17794
"Options for Newbies"
Subject 15384
"Tech Stock Options"
Subject 1638
"Trading Options on the Index"
Subject 19476
Before you buy a put option, you should be reasonably sure that the underlying stock or index is going to decline. You should also make your best estimate of how far and how fast. Any time you BUY an option, you are buying time value, so you would like your option expiration to extend past what you believe will be the end of the decline -- For instance, if you believe that the market may be subject to a severe Y2K decline, you would want a put which would extend beyond Jan 1, 2000. So, if you have made your best determination of what, how big a decline, and how long it will last, you can reasonably price put options. Some things to remember:
1) If you buy a put option, you CANNOT lose more than you paid for the option itself, including commissions.
2) Ideally, you would want to buy a put option at the same time you would sell the stock or index -- as close to its high point as is prudent, and preferably while the equity is approaching its apex.
3) In a rising market, put option premiums decline, and once the market starts down, the premiums rapidly become more dear.
4) You can then build a simple spread sheet to calculate the current premiums for various put option strikes for the equity you are looking at, and determine where you would get the maximum return on your invested dollars if the equity behaves as you expect. (or one can do it by hand, but it is much more time-consuming)
Recommend you do some serious research, draw your conclusions, and then present your proposed transaction to the pros on the appropriate threads listed above what they think. Buying puts in a bull market can be very expensive insurance.
I'm looking forward to seeing you at the Shareholders' Meeting -- we can discuss this further there.
DELLish, 3. |
