Edwin-sen, you are correct in that if Visio blew up, my mentioned arbitrage play would blow up as well. It would be just as if I bought Visio shares outright except I would lose 10% points less than the outright share buyer. Never sold puts on something I am not willing to buy. Vast majority of my put sales ends up in me pocketing the premium, some end up in me buying shares I want and eventually (actually quite quickly) go up, very few ends up in disaster (none yet, knock keyboard). The only time I got nervous was when in my enthusiastic youth I ended up owning astronomical number of Intel as it was going down (I went up above water after less than 30 days).
I tried a paper experiment a while ago on the Hong Kong Shanghai Bank and Republic Bank buyout and in that case fraud was discovered in Republic (vis a vis Japan operation and Russian money laundering), but it still paid to play the arbitrage in that instance.
As most stock plays, I believe one has to do these trades as a controlled habit and in quantity; over time some plays will blowup, but the completed trades will have covered the difference - law of large numbers.
I am trimming the number of shares in my portfolio once again as I am (1) somewhat nervous, (2) can not follow so many plays in this hyper frenzied market environment, (3) building cash for still more concentrated buys in several favorites when they fall (and they will). I just sold my MER, RMBS and FDX.
As the hedge funds are heavily into the tech shares now, I will be only selling between now and EOP January. Hedge funds cause much problems for genuine investors (wit Asia 1998). |
