JDSU: stock vs. selling puts:
I've considered this strategy, and I think it's a reasonable plan. I'm not using it because:
1. much lower trading costs (commissions and spread much higher, on low-cost options).
2. I prefer plans as simple as possible, with as few variables as possible to consider. With options, I've got to consider the time factor in all decisions. With stock, I don't.
3. By selling puts, I don't have control of when (or whether) I own the stock. I don't like that loss of control.
4. By selling puts, I give up all the potential upside (except $1.35 of it), while still accepting most of the potential downside ($3.65 of potential net downside, with the puts). With stock, I have all the upside, and all the downside, so stock has a better risk/reward balance. At some point, good news will come out, on this stock. When that happens, the stock may gap up 50% the next day, and never look back. I want to be in the stock when that happens, and I have no idea whether it happens next month, or in 2004. Hopefully, by the time this stock breaks up out of its bottoming formation, I will have decided the stock is now "investment-grade", and cancelled my sell orders. |
