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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 76.94+1.1%Nov 28 9:30 AM EST
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To: The ChrisMeister who wrote (14791)6/26/1998 8:53:00 PM
From: Thomas Scharf  Read Replies (1) of 77400
 
ChrisMiester,
My put strategy goes like this: let's say the current stock price is $85 and earnings are due out in a couple weeks during the first week of the month. I would buy $80 puts which come due in the same month earnings are out (for the full number of shares I own). Typically these cost me something in the neighborhood of $1.75/share (I can't check current prices because the web site I use for option quotes is currently off line). If we have a negative earnings surprise, my down-side is limited to $6.75/share max because the short term put will appreciate pretty much dollar-for-dollar as the stock depreciates. If earnings are OK or even positive, I can sell the put for a reduced price (perhaps half of what I paid for it). After I take the tax loss on the option sale, my "insurance" has cost me around $0.85/share or even less which is about 1% of the value I'm insuring.

If the stock falls 50% (as it has a couple times in the last 6 years) and I make a big profit on my put, I'll owe taxes, but not as much as I would if I sold my shares on bad news (my cost basis for CSCO is <$10/share).

You could try this with "out-of-the-money" puts as you suggest, but you're just increasing your risk. I view this as a loss limiting strategy rather than a profit opportunity. I expect to have a small loss in exchange for peace of mind. I only employ this when I think the price has become a bit over-heated.

Good Luck,
Thomas
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