Ron,
I'm still working on understanding your note (the one to which I'm responding). I have to say off the top that I don't have a clue whether VLSI is going up, down or sideways. All the stocks are simply following the market and the market has been so volatile that stocks go up and down huge amounts on the same day. Even if not for the market itself, I wouldn't be that good at predicting VLSI's action. If I were really good, I'd be trading it like Dan does.
Instead, this is a stock on which I opted to use a different system entirely: AIM. If you're not familiar with AIM, Tom Veale is the most expert on it, but this system assumes a stock will go up and down and has you buying more when it's down and selling when it's up. Well, this was working fine for me till I got too cocky. I thought I could outguess the market and this stock's action and overextended myself selling puts in it with a strike of 15. I was sure that 15 would be support. Now I can't buy more shares at this attractive price because I'm committed to buying too darned many shares at 15. So I am "out" of the AIM system with VLSI for a while.
Basically, with this stock, AIM was my hedge. I'm not typically a hedger, so I don't want to suggest I'm usually that smart, but when I use AIM on a stock it does the hedging for me by averaging me down and making me take gains, too.
So, here I am and your choices were to sell calls, buy puts or do nothing. I'm currently positioned with an expectation of the stock going up, so the real hedge would be to buy puts. Since I'm running close to empty on cash and the puts will expire worthless if the stock goes up, I hate to buy them. I know I hate to "waste" money on insurance. Very bad. But I'm not discounting that now that I've seen that VLSI will break support. If there's another downturn next week, I would like to be covered. In that case I should buy puts. Can you recommend a strike a month that would be good? January's would offset the puts I'm short. Would I need to buy a put that is in the money to provide a true hedge, or could I go out of the money? Let's figure it out and see if it's feasible?
Thanks very much for your help.
Linda |
