Selling Puts: Have Cash Will Travel Message Board

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Strategies & Market Trends : Selling Puts: Have Cash Will Travel

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To: Greg Higgins who wrote (893)	1/25/2000 9:59:00 AM
From: tyc:>	Read Replies (3) of 1235

The straddle, it is true has a fixed profit range, but only if you work from the time you entered into the straddle. Time doesn't stand still! At today's market price of the common, the straddle presents an entirely different profit profile. Even if you are trading outside the ORIGINAL profit range, you must consider the present position. If the stock is trading so that the put side is deep in the money without any hedge, the whole position has a very strong bullish bias. To counteract the undesirable downside risk (if you want to do so) you simply need to short stock ! You ask for an example. Stock trading at 20 1/2 and the strike of straddle 22.5. Even though put side was in money I was also long the stock; I felt very bullish ! Earnings report was due in the following day. Then I read this siliconinvestor.com which says the odds are 10:1 that stock will fall after earnings come out. So I sold my 200 long and another 200 shares besides going short 200 shares. (But the whole position still had a bullish bias albeit reduced) Earnings were good but stock tanked so badly that I shorted another 100 shares, neutralising the entire position I played around with the short position making a couple of miscues in the process.. Yesterday I closed out the hedge and discovered that the hedge per se had yielded a profit of $500. The way I look at it is that that $500 has enhanced the very generous profit profile of the straddle. But the whole purpose of the hedge was to reduce the bullishness of the position, I left it on until I no longer wanted to reduce the bullish bias ! I took the hedge off yesterday morning when stock was $18.85. It closed at $18.10 ! Damnit !

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