Gersh's Option trades Message Board

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Strategies & Market Trends : Gersh's Option trades

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To: Joe Waynick who wrote (602)	10/14/2005 9:44:34 PM
From: kaka	Read Replies (1) of 652

Hi Joe, Guess the part I missed was that you don't mind owing the stock long term. Even though this stock fits your parameters making a worse case scenario unlikely, a little risk management never hurts (as I've learned in the past!!) A long put a strike or two below your short puts protects you against a large downside move. Your risk is now limited to the difference between the short and long strikes x number of contracts x share per contract. If underlying drop big and you are assigned the short with the obligation to purchase shares, you then exercise your long to sell those shares. There are other ways to unwind the positions, but that is essentially it. Of course, you're cutting into the premium you collect from selling the short put by purchasing a bit of insurance. The margin requirements are also greatly reduced compared to a short put, but if it is your intent to purchase the shares if assigned, they are probably cash secured. Happy trading. Good luck with the stock !! cheers

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