Let me clarify. If stock/index is going to drop, buy long term PUTS, the time premium will be high but the decay intially will be slow. If you believe the stock/index will continually drop, leave it unhedged. But since all stocks/indicies bounce around, as the stock hits valleys, write PUTS short term, where the time decay will be more rapid. This obviously takes timing. If one doesn't want to play the timing game, simply buy the PUTS and roll further out as the expiry date approaches, to minimize time decay. If you're hedged with a 10% correction, your gain will be limited to the difference in excercise prices on your Puts. So, your decision to write near-term comes down to how much confidence you have in your timing.
The above is loosely a form of a Calendar Bear Put Spread, you can find it in any options book, or maybe even one of the various option sites on the net.
Jan |
