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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: Bilow who wrote (8694)	10/31/1997 12:12:00 AM
From: Bilow	Read Replies (1) \| Respond to of 94695

Long term Dow puts for conservative investors: I've been looking at the later expiry options on the Dow, and noticed that the September future is trading at a premium to cash so that you can buy the September 8800 put option for such a low price that you will make money as long as the Dow doesn't increase by then, and, of course, your option will at least return something if the Dow ends below 8800. Here are the prices etc, as of trading close today: Symbol: DJXUJ Sep 88 put, ASK: 14 1/8. (with 100x index ratio) Thus a contract costs $1412.50. If the Dow stays at 7382, the option will return 8800 - 7382 = $1418.00, slightly more than the purchase price, before commisions, but after purchase spread. If we end up with a 30% bear market, and the Dow drops to 5740, the option returns 8800 - 5740 = $3060.00, for an overall return of 116% or more than 200% annualized. Note that it would be typical for a bear market to drop the Dow something like 30% per year. To do this trade, the novice will have to go and get their account okayed for the purchase of options. I don't think you can do this in your IRA. This seems to me to be a pretty safe bet for a bear who doesn't want to guess the short term market. Of COURSE, I am not a financial adviser, much less one of the those who provides advice that is always profitable. p.s. I think they should rename "Flight to Quality" as "Flight to Safety", which is much more descriptive. -- Carl