10-12-2009, 01:48 PM
Okay, so say you buy the 210 November put for $2218 plus say $14 in commisions, for a total of $2332. Plus you have 100 shares of AAPL worth $19k (at a stock price of $190), at an original cost of say $17k.
Next week AAPL blows away the numbers, and shoots up to $210. The value of your stock is up by $2000, but your put is likely only worth $910 (based on the cost of an at the money Nov put now). So instead of making $2000, you've made just $578. And that's assuming you sell the put instead of holding it to expiration.
If instead AAPL misses (or just disappoints), and drops to $170. Your stock has dropped in value by $2000, and your put is probably up around $1800. So you've limited your losses to around $200.
So I guess I can see the risk/reward benefit makes sense to a degree, but I'd rather just stay long and strong with AAPL. Even if there is a temporary dip, I have no doubt it will cross the $200 mark fairly soon, probably the end of the year, and will likely hit $300 by the end of next year.
For lower quality companies, though, like a Citibank, or a something where bad news could tank it 80%, like Denedron, I think it makes a lot of sense. I'll have to look into it more.
Next week AAPL blows away the numbers, and shoots up to $210. The value of your stock is up by $2000, but your put is likely only worth $910 (based on the cost of an at the money Nov put now). So instead of making $2000, you've made just $578. And that's assuming you sell the put instead of holding it to expiration.
If instead AAPL misses (or just disappoints), and drops to $170. Your stock has dropped in value by $2000, and your put is probably up around $1800. So you've limited your losses to around $200.
So I guess I can see the risk/reward benefit makes sense to a degree, but I'd rather just stay long and strong with AAPL. Even if there is a temporary dip, I have no doubt it will cross the $200 mark fairly soon, probably the end of the year, and will likely hit $300 by the end of next year.
For lower quality companies, though, like a Citibank, or a something where bad news could tank it 80%, like Denedron, I think it makes a lot of sense. I'll have to look into it more.
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Currently PvPing in the stock market
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