Shorting and selling puts at a target price to cover the short would be the equivalent of shorting a naked call. That strategy kind of scares me, particularly in this ferocious bull market.
In general, when I believe a stock will decline, I'm betting on stocks that I think are way overvalued (e.g. RMBS, MU, GTW). But, there's a reason that the stocks are overvalued: investors like these stocks, and are willing to pay above what I see as fair value. And if they're willing to pay high prices, who's to say that they won't pay higher prices?
Plus, I don't use TA, I just use FA, so I'm not very good at timing.
So, shorting (or selling naked calls) scares me because of the unlimited risk. When I bet a stock's going down, I generally use long puts, so that if I'm wrong, I only lose 100% of a very small portion of my total capital. The time decay is painful, but I prefer the lower risk.
Richard |
