Taikun, I can not say I have had any satisfaction from stop loss orders ... I felt I either got deliberately taken out by some trader and shot against the wall, or I felt I am not 'in control' when I should be at the switch.
I am going to give an example of a trade, though I am not counting on October Black Monday and Y2K to do much for profit accumulation for me. As I stated before,my only hedge for the downside is a bunch of NEM January 17.5 Puts and a whole bunch of NEM shares with average cost of around $10-12/shr (after lots of puts not exercised against me). I have been selling NEM puts for so long that my NEM equity long position is heading to be effectively free. I will start selling NEM covered calls if the share price hits $25.
You can pick the weakest of your internet shares - whatever they are (not 9984, as no option trading in US). Say you hold Amazon ... now at US$113/share. You can sell October Call with strike price of $130/share (if you had bought AMZN around 113 or less), giving some one the obligation to buy your AMZN at $130 by October - the Call option nets you $9.62/share. You can turn around and use the $9.62 and buy six (6) October Puts with strike price of $70/share or buy one (1) January Put with strike price of $85/share for $9.62/share. This gives you the option (right) of selling your Amzn to somebody at 70 or 85 per share.
Now you are cash net net zero, short 1 call and long 6 or 1 Put. When the time comes, should Amzn really crash below 70 or 85 due to October Black Monday or December Y2K, you do not need to sell you Amzn shares, but merely sell your Amzn Put for a gain. Should Amzn go above 130, you get taken out of your Amzn long position at 130 (limiting yourself to 15% gain on Amazon over the next few months is the price of insurance) and the Put you hold expires worthless. Should Amzn crash to 56/share (50% loss), your October 70 Put or January 85 Put would be worth $14/shr or $29/shr respectively. Sell the Put, keep Amzn long position for post holiday January rally.
Doing this trade would break one of my own rules set for myself ... never buy calls and puts unless to close out a previously opened position. I would not buy Amazon Puts myself as it is selling for around 2-3 times its Black & Scholes calculated value. Given the market price for this insurance, I would be selling the Puts for others to insure their portfolio, and be prepared to be putted with the shares at 70 or 85 by October or January, and ride it on up from there.
For option trading ideas ... shorting the guys truly deserving to be short, check out coveredcall.com |
