Thanks, Taxman, for XRX example. It is perfect for my argument.
XRX at 60? So you bought the underlying and sold calls or shorted naked puts. In either case you lost your shirt without even a chance to recover because of big downward gaps. XRX last saw 60 in July,1999 and it is now under 24! It can happen to LU,VISX or any such seemingly invincible stocks. Even for long term holders XRX was a terrible stock to hold on when it gapped down in mid-July.
It also depends upon your style: whether you are investor or trader, how long you hold your positions, etc. I trade options as substitution for underlying, based upon Technical Analysis, chart patterns, fundamentals, etc. Playing long options is my way of limiting my risk - I believe it is the best risk management tool there is.
Even for long term investors it is not advisable to hold on to a stock when it is on its way down from 60 to 23!
Thanks again for making my point for me :-)
Regards:
GP |
