BTW, why would I buy ORCL stock if it's going down?
And, the # of puts I've bought are fairly substantial - reasonable risk/reward to me.
Lets say I shorted 1000 shares of ORCL at 26. That would tie up $26,000.
Let's say I bought 10 contract of puts at 1, controlling the same 1,000 shares. That ties up $1,000.
The stock goes to 18. ON the shorted stock, I make $8,000, for a short term return of 31%. ON the puts, I also make about 8,000, less a little for the lost time value. Call it $7,500. That's 750% return.
Which is better - 31% or 750%? Not only that, but if I'm wrong, the most I'm out on the puts is $1,000. If ORCL shoots up, for whatever reason, then I could be out a lot more - maybe thousands - until I can cover.
Obviously, I haven't counted in commissions or taxes, and the number of shares/contracts is very different. But most of you should get the general picture.
No doubt someone out there will give me some big technical argument about something, or why I did the wrong thing, or whatever. |
