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Strategies & Market Trends : Options
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To: voop who wrote (67)12/27/1999 4:53:00 PM
From: taxman  Read Replies (3) of 8096
 
"how we can...protect our...gains"

1)sell covered calls:

if stock rises substantially you either have to close at a loss or sell the stock at the strike price.

if stock drops substantially the premium usually does not fully protect you against a loss.

only works if stock does not move substantially.

my experience--not recommended.

2)buy puts on the underlying stock.

if stock rises you keep the stock and lose only the premium.

if stock falls below strike price, you have no further loss except for the premium paid.

my experience--good strategy if you believe the underlying stock will fall but are not yet ready to sell. still have unlimited gain potential.

3)buy puts on stocks other than the ones you are long that you think will drop.

you can make money both ways. your longs go up and the puts go up.

you are not fully protected, however, if your longs drop substantially.

i use this strategy myself using the sell list from value line. it has worked well for me.

regards

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