Thanks once more, Michael, for your clarifications regarding your 90/10 account. The concept of only putting 10% at risk reminds me of Gerald Loeb -- perhaps not coincidentally? <g>
Do you have any general rules on how far out in time and out of the money the puts should be? How 'cheap' they should be, in effect?
For example, assuming a 100K portfolio ... that's 10K for puts ... say 10 different issues for diversity, so I'd have 1K for Dell, that's 10 $1 puts ... I could buy (based on Friday's prices, more or less) Oct 45's or Nov 40's or Jan 32 1/2's ... so I'd need to see Dell at $35 by Friday, $30 by November, or $22 1/2 by January to get a 1000% home run ...
Or I could buy 5 $2 puts ... the Jan 37 1/2's for instance ... but now I'd need to see Dell at 17 1/2, so the Jan 32 1/2's are a better bet in terms of getting the home run, albeit somewhat riskier with regard to return of capital.
The Jan 25's at $1/4 are riskier still. They have the same home run threshold as the 32 1/2's, but are some 6 3/4 points further out in terms of return of capital -- there seems to be something of a U-shaped curve here, it would appear ... |
