Michael,
I'm confused and need help, and my apologies in advance if this seems trivial.
I'll illustrate with one specific trade then hopefully you can help with the strategy...
When IBM was around 150 in October, I bought a third of JAN 12O puts. Cost me a buck or so. W/ IBM now at 180, that dollar (same three months) buys me the same 120 strike. I would have expected in October, other things being equal, that if the stock were to go to 180 by January, my buck would buy me a 150 strike (or reasonably thereabouts) three months out. I guess this is volatility being built into the options prices. Big time.
When volatility goes up, I'd like to capitalize on it (from 180 on down, not just re-initiating the same 120 position). At the same time, the game now becomes more expensive to play on a per-share basis, making it harder to swing for fences as you say. Though a good sign fundamentally to see so much premium in put options as we go higher, such an exaggerated change to me suggests I need a new pair of dimes for determining the size of my suspenders in this market.
Thanks,
Doug |
