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If my stock is currently at 9.00 and the market is trending down. Is there an option play that would protect my position if the stock starts to head down.

2007-06-19 01:23:38 · 5 answers · asked by Ed W 2 in Business & Finance Investing

5 answers

buy the put at 9$ is the only option strategy that makes sense.

writing calls will only protect you to the extent of the premium you received.
buying calls is dead wrong as is writing puts.

if your looking for a more sophisiticated strategy like a bear spread im afraid i cannot answer as i am not THAT sophisiticated.

2007-06-19 10:07:37 · answer #1 · answered by Ryan S 3 · 0 1

If you already own the stock and do not want to sell it for some reason (like capital gains) you can buy a put. If the stock stays level or goes up, you are out what you paid for the put. If it goes way down, you will make a profit on the put that will go toward offsetting your paper loss from holding the stock.

2007-06-19 01:54:02 · answer #2 · answered by Ted 7 · 0 0

Sell a covered call.

My way is to buy the stock low, then sell the covered call when the stock has gone up at least 25%, for a price of at least 25% of the purchase price, with a strike price at least 25% more than the current price, and an expiration date at least 1 year from the purchase date.

If the option is exercised, I made 75%, the stock sells, and since the stock was held for more than 1 year, I only have to pay the lower long terms capital gains tax.

If call expires worthless, I keep the 25% from selling the covered call, and I can sell another covered call.

If the stock goes way down, I still have the 25% I made from the covered call to help cover my loses, and I can sell another covered call when that one expires.

Also, since you are keeping your long position, you get to keep any cash dividends.

2007-06-19 01:42:59 · answer #3 · answered by Feeling Mutual 7 · 0 1

Forget the options. If you have a stock that you think will go down, SELL IT. Only hold a stock if you think it will appreciate. Options are tricky, 85% of them expire worthless. Options should be left to experienced investors.

2007-06-19 02:27:14 · answer #4 · answered by Anonymous · 0 0

Depends on your portfolio.

In this case do not exercise the right to buy and you have suffered a loss of the cost to buy the Option.

The smart move is to engage in a short position or even sell a stock you own (which of course is winning you money) and this will offset the loss of the previous cost you suffered in the overall.

2007-06-19 01:30:03 · answer #5 · answered by alx 2 · 0 1

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