Tim, There is no cheap way to lock in, but there are ways. Here are the cheapest.
1. Let's say you have Jan 120 Citicorp puts. If you sell them, you pay Uncle Sugar a bundle. However, if you buy calls with a jan $80 stirke price, you have effectively locked in your profit at a fairly low pure premium and commission cost. If the stock goes back up, your deep in the money call will go with it nearly one for one as your put loses money. The negatives are whatever pure premium you pay, the cost of money for holding a non-performing position, and commissions.
2. In the above example, you could also buy the stock. In Jan, you exercise your puts and offset it with your longs. You have to calculate whether the cost of holding this larger dead money position, plus commissions and less the dividends <VBG>, offset the pure premium from the stock option. Generally, they should be arbitraged to be a tossup.
BTW, in both of these examples, there is a chance that Citicorp will continue to hit the skids. If so, you may have a nice tax loss in the long position, which is not a net loss, because you hold the puts.
Hope this helps,
MB |
