Cadaver, re: "What happens if you buy puts and the market keeps going up for the next one and a half months?" Was it yesterday that you asked me this question?? And today the tide may be turning down already??
Moving on ...I was talking about LONG-TERM options, 5 to 15 months out in time or quick flips of 1-5 days. See an on-going discussion I had with dppl today on the options thread about quick flips. As for long-term options, the basic premise is that the market will gyrate, so things should work out when one buys puts/sell calls for weak stocks in the up wave and sell puts/buy calls for quality stocks in the down wave. Play it up, play it down, or play only in the direction of the dominant trend.
Here's a strategy I used during a big down wave. For awhile I have like WIND but its price kept climbing, and that's part of the attraction. Two tech slaughters ago (yes, I was a bit premature) WIND fell to 27-28 and I initiated a synthetic stock position ... sold Nov 30p and bought Nov 30c ... bottom line was that about $200 allowed me to control 100 shares until Nov. Last Friday WIND intraday high was $37 ... and now there are several alternatives for this play. Do nothing and let things ride; close these positions and pocket the gains; close out the puts and let the calls ride; but perhaps the best is to sell Sep 35c covered calls when/if WIND surges again. Think about it ... no margin requirements since my long Nov 30c position serves as the stock. Works even better with leaps for the market will need most of the year to find stability. What I have described is a synthetic covered long stock position. However today WIND closed at 33+ ... dirty mm is at work.
Long-term options allows one to be off a bit in timing .. so long as one is right in the overall trend of the stock. In this market, I'll only do a 1-5 day flip on options ... otherwise, strictly long-term options until the market stops throwing tantrums. Good luck.
PS: Come on, Cadaver, you know I DESPISE losing money. |
