LONGonDELL asked: "What if the stock stumbled and never recovered?"
You're in a better position with the options, since when a stock falls $10 the put will only change $5-6 unless it's quite close to Xday. You can close options any time. I doubt you would hold a stock that fell from 35 to 2 [Vivus]. If you're on a down elevator no need to go all the way to the basement.
Remember that you can roll out a losing contract into another stock, your dollars don't know what company is named on your confirmation ticket when you trade, and your broker doesn't care. It's a dollar game, pure and simple, the challenge: to keep the option premium you received.
Consider: Stock is at 100
July puts and calls are each 15
You buy the call, your breakeven point is 115
I sell the put, my breakeven is 85
From the first minute I'm 30 ahead of you
If the stock doesn't budge you lose all, I make 15.
I can also roll out the short put forever, each time making a gain.
This takes away time pressure, I don't have a deadline as does a call buyer.
Try rolling out long calls, it's complicated.
An account I opened for option trading in June 97 is up 435%
Not incredibly good, but not too bad, either.
I'm short some Leap puts that are $85 under the market price, veery nice!
I make lots of mistakes, learn every day.
My technique is better than I am as a trader.
This fits my personality, but makes some others uncomfortable, all styles of trading when properly executed can be very profitable. I seldom do large single trades, usually 10-20 contracts, select many expiration dates and several strikes. And I can always sell some calls to sweeten the pot, a straddle, if I don't think the stock will jump too high, but this is the greatest area of risk, and should only be done if the call side is covered.
Have enjoyed & profited from your posts for 2 years, Long!
Thank you, and Happy Trading!
Don |
