Way too scary for me to bet on a near term decline of the magnitude needed to make money on long puts.
Great advice, Dan, a post well worth reading and then re-reading. Fighting both the market and unbelievably high IVs by going long on the puts is not exactly a recipe for certain success. <g> And betting when this particular rocket will level off and head back down seems more suited to Vegas than Wall Street (but I do think October provides enough time for things to sort themselves out).
That being said...if TERN broke out beyond its old high, I was thinking hard about a bear spread in puts (ie, a vertical debit spread). Haven't looked hard at all of the current numbers, but using last night's closing prices, let's say for argument's sake I was to buy the Apr 270s puts for about 53 and sell the Apr 230s for about 33, or a net debit of 20 points. If TERN closed anywhere below 250 on April 21st, I'd break even; if it closed below 230, I'd have a 40 points locked in, or 100% profit in eight weeks. Reasonably compelling if you feel it's vastly overvalued (I do) and think the momo action has run out of gas (not sure of that yet, which is why I'm waiting). Probably would be better/safer going out a few more months, natch.
(This would also work as a credit spread in calls, of course - hmmm, working this out as I go, say I sell the Apr 240s for 60 and buy the Apr 290s for 40, net credit 20, keeping the breakeven at 260 as with the put spread...now the maximum profit is up to anywhere below 240, but the worst-case loss is 30 points [if we close over 290 in April] vs a max loss 20 in the put spread [if we close over 270], interesting tradeoffs assuming I have the numbers right here...)
It _does_ seem the spreads give you a way to play one of these high-fliers with the high IV being somewhat cancelled out by the simultaneous buy/sell aspects of the spread. Contrary opinions and analysis on this one are welcomed.
-Rose-
PS: I agree that selling way OTM puts on any large pullback might do well, simply because the premiums are so rich, but you'd have to be awfully sure of your TA support determinations to sleep well at night...I don't tend to have that kind of certainty on one of these types of plays. |
