If you will notice, those puts have a reverse time premium, which is the remarkable thing about them. That is, you get a strike at 14,000 (or 140) but you are only paying $2,800 when the Dow is at about 10,400, right now. So the Dow would have to be above 11,200 nearing settlement date for one to lose money on the put. For me, the number is 11,500, since I bought the puts at about 2,500.
Now of course, if one is confident that the Dow will be above 11,200 in December of 2002, then one would be well advised to sell the puts. To me, it seems that it is much more likely that the Dow will be lower between now and settlement. Therefore holding these puts is in keeping with my belief. Maybe I am wrong, but as best I can tell what I am doing is consistent with my view of the markets.
If this is not a correct view of how the options work, I would be happy to know, but to judge from the action of the options they provide a good hedge against lower markets. |
