A few words on shorting puts. People often will study a stock and watch it bounce many times before gaining the confidence to short the puts. The mistake therein unless one is experienced in reading the stock and market, is that by the time the person is confident enough to pull the trigger ... the stock has fatigued and is about to reverse.
Today DELL did a reflex bounce back off the 200-day dma/ema back to support 45-47 interval, the reflex is sharp and quick the first time, maybe the second also. The strategy should be to short in the money puts, ie. Oct 45p or 50p depending on one's risk tolerance. A reflex bounce may be over in a day, and so is the trade. One does not hestitate in trading a reflex bounce, pull the trigger, in and out, trade is done.
Selling puts for a positional trade is a different matter. For instance, the LU Oct 65p I entered today. Plan to hold them until expiry anticipating that the stock does a 1/2-2/3 retrace up from whence it fell. Market is due for a relief rally, stock is technically oversold, sector has been slaughtered for over a week, company management has said things were fine for the quarter, earnings coming out the week after expiry, LU normally announces contracts or other good prior to earnings, yada, yada, yada. The ducks must be lined up to support a positional trade, and if the ducks are not enough to please the market ... then, one rolls into one of several contingency strategies or accepts assignment of the shares. |
