aki: re: Oct. 30 puts vs. shorting:
can you give me your rationale for choosing those puts (in-the-money 3 months out), as opposed to shorting (or January 99 puts, or out-of-the-money puts). I just started shorting this year (I'm 3 for 4, so far) but I've never bought puts.
I agrea with shorting or buying puts when AMAT approaches 32. There are no conveivable events that can lift the stock above that level (and keep it there) in the next 3 months (certainly), and 6 months (probably). Having made that decision, everything else is just details.
As I see it, the biggest disadvantage of shorts is the risk if the stock goes up. That risk can be mostly eliminated by placing a stop-loss order when you short. I say "mostly", because my one loser was when AMGN gapped up through my stop-loss price. Ouch.
The biggest disadvantage of puts (and calls) is the spread. Unless the stock moves a lot, the MM gets most of your gains, while you take all the risk. For instance, on my last short, I shorted KLIC @ 17, and covered 6 days later @ 16. I wouldn't have made much if I'd used options. The Oct. 30 puts you bought have a 0.25 spread (2.125-2.375). 0.25/2.25=11%. That's like buying a mutual fund (that you intend to sell in the next 3 months), with an 11% front-end load.
Other disadvantages of puts are 1: less liquidity and choice, 2: you must guess 2 things correctly (stock direction, and time frame). In a stock as actively traded as AMAT, liquidity is not a problem. But if you wanted to choose the semi-equip that is most overvalued, it has been NVLS or ASMLF or others at various times this year. All of them are easily shortable, but not so easily puttable (is that a word?).
I agrea with the October time-choice, rather than August or September. Actually, The January 1999 puts might be a good choice too. They are only slightly more expensive (3-3.25, for the Jan. 30 puts=ANQMF), and give you 3 more months to wait for true capitulation. Early next year (barring a recession, which is an unpredictable event) will be the latest that the stocks might bottom, so I wouldn't want to hold shorts beyond January 1999 anyway.
How about ANQME (January 25 puts)? Price is 1.125-1.375. Another huge spread. I guess it depends on what you think the most likely bottom price is. |
