Michael, I am just getting into options investing and think that there could be a big hit to the tech sector in the first part of next year. This has been referred to as the "nuclear winter" scenario. As a neophyte in this area of options trading, my problem is that I fail to see the potential for a "killing" if we are right about the nuclear winter. For example, I see Dell 40 puts trading for about $3.25 for Feb. To control 10,000 shares I would be risking $32,500 and if Dell takes a $10 hit in share price that is, of course, a $100,000 gain. That just doesn't seem like good risk/reward relative to $32,500 going up in smoke in February.
Possibly this says more about my potential as an options player than it does about risk/reward. What kind of risk/reward profiles do you like to see before undertaking an options investment? Do you like to play in the money or far out? And, finally, has your opinion on the potential for nuclear winter changed any lately?
Thanks in advance for your help. |
