I need to educate myself on doing puts…ARGH!!!!

Bet against them on Monday and doubled my portfolio in two days. Man I’ve been waiting for them to dive. I pulled out of my BSC puts prematurely yesterday with a 60% gain. Would have had 200% percent after today. Tomorrow should be fun if you look what happened to the Yen and NIKKEI in the last two days.

Yeah, CFC puts are finally starting to pay off. But the homebuilders are REALLY paying off, since early June. I am loving my BZH, HOV. How about WCI today?

This week has been great, the kind of action in the market we have been waiting for!

Options Cliff Notes version:

PUTS: are the opposite of CALLS. CALLS are right buy a stock at a given price. PUTS are rights to sell a stock at a given price.

An option’s price has a premium, which depends on several factors, some being the duration to expiration, the strike price’s nearness/farness to the current price of the stock, current volatility of the specifc security, etc.

As with an option, you have a choice to buy an option or write an option. If you buy PUTS, you’re betting the stock will decline.

Personally the only thing that I do major with options is write covered calls on stocks that I want to sell at a specific price. Considering that most options expire worthless or with exercise cost that exceeds the fmv of the stock price the day I’m assigned the option, it’s pretty much extra money of securities that I wanted to sell or that ain’t moving. So far for me, 70% of my written options expired worthless, 20 percent are exercised with a total cost that was more than if the people buy the stock themselves, and the remaining 10% are exercised at my lose (stock option stice price + option premium < market price of stock day I was assigned to option.) I have a much better track record doing this than when I use to buy calls or puts, when I was about 30% right and 70% wrong, and the 30% of the time being right never yielded more than the 70% of the time being wrong.

oops I forgot..One other thing… PUT options are very useful if you have a lot of company stock options that you want to hedge against.

For example, back in the heyday, I worked for a company that gave us $30/share options. When the stock hit about $250/share, I was still unvested, so I couldn’t cash out the company issued stock options. What I did was when the market price was $250/share, I bought the equivalant number of PUT contracts at a strike price of something lower (say $200/share) that expired 1-2 months out.

The reason being is because 1) a sell price of $50 less than current market plus a short expiration window meant the cost of the option wasn’t that much. 2) It offered some downward protection in case my company stock declined while I was still waiting to vest. I had to keep buying put options every few months, until i vested for a year, because for the first year, my company did well and the stock held pretty well, so my PUT options kept expiring worthless. But the few thousand dollars lost to expired PUT options was trivial relative the the options worth of the one issued by the company. Finally at the end of the first year, I exercised and sold my vested stock options for the first year at about $226/share, and continued to buy PUTs for the unvested portion the second year to hedge against the remaining unvested portion.

The second year i was there, my company’s stock cratered from $200ish down to $17, my company options were worthless, but my PUT options did just fine. (On top of that my company reissued stock options at $17 which over the next two years eventually cratered to $7).

Please note though, It’s not worth to do this if you are only issued a few company options (1000-2000) or the strike price of the companhy issued options are too close to the fmv of the current stock price, as the cost of the PUT options you buy will strip any profits you make from your company issued options. And you shouldn’t be gambling that your company will do bad. Afterall, if you know that, you shouldn’t be working there.

Also, some companies have strict company policies that says employees should NOT engage in trading derivatives of the company, though unless you’re a director/officer of the company or have insider data, it’s just a company policy, not a SEC policy. The workaround is to find a distant relative/trusted friend to buy the PUT options as a hedge against their own stock options. Also, you definitely shouldn’t do this regardless of what company policy there is if you’re a company officer,director, or have insider data….Chances are you will breach some SEC rule, and you don’t want to get a call from them.

Bet against them on Monday and doubled my portfolio in two days. Man I've been waiting for them to dive. I pulled out of my BSC puts prematurely yesterday with a 60% gain. Would have had 200% percent after today. Tomorrow should be fun if you look what happened to the Yen and NIKKEI in the last two days.

Capemen, My experience is that you can rarely time the option prices correctly. If you start thinking "if I only waited, I would have made 40+% more", the next time you buy options, you will mentally want to stay in longer than you probably should..And chances are your options will expire worthless. While you possibly could pass off buying/shorting stocks as an "investment", playing options is really gambling. You're not going to win every hand, and on the hand you want to win on.

Buying puts I kept making alot, then losing alot.. it evened out for a while but then I started doing something diff.. What I noticed is that the stocks I was buying were so volatile that before expiration I could expect to be up and down a few times, but the pattern was that I always was up at some point… so now, I sell a % of the puts that is 1/2 the gain. So if the puts are up 100% for the day, I sell half of my puts.. it’s hard to do esp with homebuilders and mortgage because it feels like ”this is it, it’s crashing now!” but take what you can get. 100-200% a few times really adds up obviously. Also, if I buy within a month of expiration it’s a 1 or 2 day trade for me, any longer and exit window just becomes too small. If you’re holding out of the money in that last week before expiration, you’re more than likely becoming the ~90% of options expire worthless guys.