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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: browser who wrote (32328)	9/7/1998 12:10:00 PM
From: Knighty Tin	Respond to of 132070

Robert, Easy one. You buy 10 $160 strike price puts on Citicorp when it is at $175. The stock falls to $140 and everyone wonders why you can't wipe the idiotic grin off your face. The temptation is to take your profits and kiss Citi goodbye. But, you went into the position thinking the dog would break par and perhaps, break $50. So, instead of cutting your profits and heading for the hills, you sell your winners, take the profits, but buy a new batch of 10 $130 puts. You maintain a position if the stock declines further and you have the largest percentage of your profits in the bank and your risk off the table. I also talk about rolling down and out. In that case, you might roll October 160s down to 130s and out to January. This technique does cut your maximum profit as you would have made more money in the long run just holding the 160s. But it is one I use all the time because I like to balance the risk and reward, keeping the risk, total money on the table, low relative to the reward. In this case, I had to roll down and down and out several times in a very short period of time. That is called not just hitting a homerun, but knocking the horsehide off the ball. -g- MB