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Politics : High Tolerance Plasticity -- Ignore unavailable to you. Want to Upgrade?

To: kodiak_bull who wrote (22762)	1/22/2005 9:47:01 AM
From: bull_derrick	Read Replies (1) \| Respond to of 23153

The stock may have gone up 10 bucks since 1/4 however the puts have decreased by only 2.5. I picked the Leap Puts with 80 strike because the loss would be disproportional if the trade went against me and it would be proportional in stock/option price change had the stock gone down since it was so deeply in the money. The put option is a hedge against my other holdings of interest bearing preferred stocks, high yield bond funds and REITS that I hold (mainly in the BBB credit risk area with 8-10% yields). My thought is that I want a hedge against higher rates and a put position offsetting a long position on fixed income instruments would provide that hedge. Over the past month, the 30 year portion of the yield curve has weakened and long term rates actually have gone down while short term rates have risen. The lower rates on the long part of the yield curve have caused my fixed income holdings to rise slightly more than the 2,500 loss on the TOL puts. So while the TOL puts were definitely a better play than shorting the stock and the expiration/strike was a good choice since it had much less downside than a short, for me personally it has fulfilled the role of a hedge as my holdings are worth more collectively today than on 1/4 and I'm quite happy that I did the option trade just as I'm equally happy to have paid my life insurance policy and not collected on it today. Regarding TOL, I would be quite surprised if the gap on the chart isn't filled sometime this year. I've got a sell order on my puts on GTC for 25 and will let it got at that price, if it happens. If not, I'll collect the interest on the rest of my holdings and consider the TOL puts as adequate insurance against higher rates.