Mike, Shorting puts to buy stocks have advantages and disadvantages. Assuming you are holding enough cash to buy the stock if put to you, this is exactly the same strategy as buying the stock and selling a call. If the stock goes down, you are wrong and you lose money. There is a way to cover that. You can sell 22 1/2 puts and buy 17 1/2s or 20s. This is a bull credit spread. The negative on the upside still holds, but if your main worry is downside, that may be a cheap way to enter the stock.
If it is missing the upside that you worry about, you can sell the put at 22 1/2 and buy a call at $25. This is called synthetic stock.
In this case, I like Incyte, so my druthers would be to sell a Sept 22 1/2 put and buy a Sept 27 1/2 call, if there is a 27 1/2. That should provide you with a nice credit position. If the stock goes down, you own it at a lower price. If the stock goes up, you pocket the put premium and you start making moolah on your long call. If the stock sits there fat, dumb and happy, you draw interest on your net credit and the cash you are holding.
MB |
