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Stephen, I think choosing your favorite CPQ put has a lot to do with
your philosophy of speculation. First, you are risking 70 percent
more capital to buy the 50s. It does have a higher return, one for
one, than the 45s down to 37 1/2, but it also involves much higher risk,
one for one. And, if you invest the same dollars, not the same number
of contracts,
in each put, the
45s start outperforming the 50s at a higher price and greatly
outperform even further down. So, which is better depends on your
outlook. I would like more puts for the same money in case the stock
gaps down. But a case certainly can be made for the 50s. It's true
that I roll down and, usually, out in time, as I pick up
intrinsic value and it will take longer to hit IV with the 45s. But
as it is just a one-third position right now, I am opting for the most
bang for the buck if the Big Kahuna hits earlier than I expect.
You also have to factor in how each option
will retain time premium if it is traded prior to expiration, as nearly
90 percent of my options are.
So, I
don't think there is really an arithmetical answer. I think it is one
of philosophy. Good luck, MB |
