I have a question regarding a trading strategy that I am interested in pursuing. The strategy is as follows:
BUY: 100 shares ABC @ 19.00
BUY: One Jan 19 Put contract for ABC
Premium- $1*100= $100
Profit: $20+
Loss: $18-20
Even: $18 or less
By hedging the purchase of 100 shares of ABC, the options contract acts to decrease risk but in doing so also limits my potential profit. Essentially, I would be betting that upon expiration, ABC would be priced anywhere but within the $18-20 range. The strategy operates best in highest volitility. Immediate volitility inflates an options premium which in turn expands the area of inprofitiblity having, consequentially, this would most likely only be a hedge against loss moreso than a profit yielding strategy. However, while past and immediate volitlity are priced into an options contract is that the same for forecasted volitlitiy such as an impending earnings report?
2007-12-31
03:17:00
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3 answers
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asked by
tmac5445
1