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Strategies & Market Trends : You buy a stock. It goes down, now what? -- Ignore unavailable to you. Want to Upgrade?

To: Investor2 who wrote (25)	7/7/1998 10:44:00 PM
From: VincentTH	Read Replies (1) \| Respond to of 112

I2, Re: Re: "I like to sell 1/2 of my position, and use the $ to buy twice as much calls, therefore, establish myself for a Recovery Spread for the run-up." What do you do when the price either continues to decline or remains stagnant past the expiration date? Then I lost, but not as much as if I was still holding the stock. Say, this is a real world example: I own 800 of SMOD at $25. The stock drop to $20, so I sold 400 for $8000 and a $2000 loss. I'd buy 4 calls at $20 strike price out 3 months for $3 each (4x3x100=$1200), so I now have some cash in hand, without losing my potential gain if holding 800 shares. The stock then dropped to 12.5 at expiration, I now lost an additional $1200, but I would be much better off than still holding 800 shares at $12.5 a piece. All of this, without losing the potential to gain, should the stock recover to $25. Of course, I do this only if I believe in the stock, otherwise I would be better off with a stop loss order.... :-(