HF writes:
What is your strategy now on your VVUS positions? Do you think this is a good time to buy covered calls and if so, which ones.
First off, please don't worry about me losing money. I didn't write those puts because my soon to be former broker doesn't like naked anythings, and because I wasn't all that high on VVUS.
But suppose I had and suppose I'm now long and wrong. The strategy I liked best would have me long and wrong 3000 shares at an average price of $20 / share, for an average loss of $7 / share, offset by the average of (guessing) $2 / share we got for writing the puts, so we're really long at $18 / share. This illustrates the basic isssue of any option strategy, if you don't like the stock, don't play with the options .
So what now? It depends upon how you view the situation.
Case 1. You're sure it's an abberation, the stock will recover very quickly. Buy MAR or JUN OTM Calls.
Case 2. You don't really, really like the stock anymore and you're sure it will never, ever recover. Get out. Take the loss. The first loss is always the best.
Case 3. It's an abberation, the stock is a great long term buy. Then average down.
a) Buy more stock at lower prices.
b) Sell more puts.
c) Buy Jun 10 Calls at 5 as a substitute for stock. (Risky!!, much better strategy when used with LEAPS.)
Case 4. It's a correction, but time heals all wounds. Do nothing.
Do not hurry to write the calls until you've seen how the stock is going to correct. It's now December, the new Feb options will be started up in just a week or so. Wait to see how the stock settles. You don't want to write for 15 or 12 1/2 and lose your stock at a loss. Since you can write 30 calls, you might consider MAR 20 at 3/4 depending on your commission charges, and also note that you'd still make a profit if called away at 17 1/2 on MAR calls at 1 5/16. But supposedly, this is not what you want. |
