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Strategies & Market Trends : Portfolio Protection + Money Management for the Long Term
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To: BDR who wrote (25)4/10/2000 10:20:00 AM
From: Tom Trader   of 57
 
Re your JDSU example--there are several things to keep in mind

First, as you pointed out the beta of the stock is a factor; additionally, with earnings due to be announced in the near future, options premiums do tend to get inflated at such times especially for a stock such as JDSU. The same thing can happen prior to a split -- in anticipation of a split run-up.

I have seen it suggested that one way to effect protection, is to buy puts on a stock within the same sector that has less relative strength. The rationale is that if the sector gets hit, the weakest stocks within the sector will be hit harder. I have never tried this strategy but it is one that intrigues me. Obviously, it will not offer any protection against stock specific weakness -- such as disappointing earnings or a cautious prognosis for the future.
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