Dow Closes below 13000 today. Down 167 points. NDQ -40, S&P -19.8

[capeman]

I’m not one to actually go short shares of a company due to the risk and playing with only my lunch money and its gains. I go with some long PUTs say CFC or KBH January 08 puts and you can give yourself a lot of time to watch your speculation play out. The longer PUTs will cost you more due to the time value added into them but they can be a bit safer with short term volatility. Even WAY out-of-the-money puts can get you some good profits. I dropped my KBH Jan 08 $10 puts a bit ago because they were stagnating in my account. They have 5x’ed in the last week or so and they are still way out-of-the-money

If you happen to be In-the-money when the PUT expires I believe you become Short the stock automatically. CFC puts have been doing great and I may have the luck of riding them to oblivion. BSC puts were a great play about two weeks ago but there is now a lot of IV “Implied Volatility” cost in the puts that make them less appealing.

[davelj]

I think Billy Ray Valentine summed up the current state of affairs when he noted (substitute “risk assets” for “pork belly”):

“OK, pork belly prices have been dropping all morning. So everybody’s waiting for them to hit rock bottom so they can buy cheap. The people with pork belly contracts are thinking, ‘Hey, we’re losing all our money and Christmas is coming. I won’t be able to buy my son the GI Joe with the Kung Fu grip. And my wife won’t make love to me ’cause I ain’t got no money.’ They’re panickin’, screaming, ‘Sell, sell.’ They don’t want to lose all their money. They’re panickin’ right now. I can feel it.”

[davelj]

I think Billy Ray Valentine summed up the current state of affairs when he noted (substitute “risk assets” for “pork belly”):

“OK, pork belly prices have been dropping all morning. So everybody’s waiting for them to hit rock bottom so they can buy cheap. The people with pork belly contracts are thinking, ‘Hey, we’re losing all our money and Christmas is coming. I won’t be able to buy my son the GI Joe with the Kung Fu grip. And my wife won’t make love to me ’cause I ain’t got no money.’ They’re panickin’, screaming, ‘Sell, sell.’ They don’t want to lose all their money. They’re panickin’ right now. I can feel it.”

[davelj]

I think Billy Ray Valentine summed up the current state of affairs when he noted (substitute “risk assets” for “pork belly”):

“OK, pork belly prices have been dropping all morning. So everybody’s waiting for them to hit rock bottom so they can buy cheap. The people with pork belly contracts are thinking, ‘Hey, we’re losing all our money and Christmas is coming. I won’t be able to buy my son the GI Joe with the Kung Fu grip. And my wife won’t make love to me ’cause I ain’t got no money.’ They’re panickin’, screaming, ‘Sell, sell.’ They don’t want to lose all their money. They’re panickin’ right now. I can feel it.”

[drunkle]

i have no idea how to buy options. the reading i’ve done has gone in one eyeball and out the other.

the main confusion is with the profit margin… how do you determine that? for one, i know you can buy and sell the options themselves… but which do you buy? which strike price? if you buy a $20 strike for jan 08 which is trading at 5.41, you spend $541 to buy the option, wait for the stock to drop and either the option goes up in value and sell it or exercise the option by buying the 100 shares first?

or what about the higher strikes, say a $35 option… buy at 16.30 and then…? could you immediately buy shares at the current 18.9 and exercise for an immediate 2.6/share profit?

edit: or… you buy at the current 18.9 and sell at the strike of $35…???

[drunkle]

i have no idea how to buy options. the reading i’ve done has gone in one eyeball and out the other.

the main confusion is with the profit margin… how do you determine that? for one, i know you can buy and sell the options themselves… but which do you buy? which strike price? if you buy a $20 strike for jan 08 which is trading at 5.41, you spend $541 to buy the option, wait for the stock to drop and either the option goes up in value and sell it or exercise the option by buying the 100 shares first?

or what about the higher strikes, say a $35 option… buy at 16.30 and then…? could you immediately buy shares at the current 18.9 and exercise for an immediate 2.6/share profit?

edit: or… you buy at the current 18.9 and sell at the strike of $35…???

[drunkle]

i have no idea how to buy options. the reading i’ve done has gone in one eyeball and out the other.

the main confusion is with the profit margin… how do you determine that? for one, i know you can buy and sell the options themselves… but which do you buy? which strike price? if you buy a $20 strike for jan 08 which is trading at 5.41, you spend $541 to buy the option, wait for the stock to drop and either the option goes up in value and sell it or exercise the option by buying the 100 shares first?

or what about the higher strikes, say a $35 option… buy at 16.30 and then…? could you immediately buy shares at the current 18.9 and exercise for an immediate 2.6/share profit?

edit: or… you buy at the current 18.9 and sell at the strike of $35…???

[capeman]

I just stick to the basics… Stocks that I am very confident in going down (HBs, CFC, etc.) you look at the current price and what the option price is. Say CFC was at $35 (not anymore!) and an Oct. $30 put was $1.50 per contract, it would have to go down to $28.50 or lower by expiration to make money off of it at expiration. I was expecting it to make BIG moves down past $30 way before expiration so there would be multiples in the gains. I don’t stay in until expiration and try to get out way before on the big moves.

The last couple of weeks before expiration you can see Puts deteriorate greatly due to time factor.

Back to the point though. I saw CFC going to ~20 by October so $30 puts would make big money in that respect at only $1.50. If CFC had come down to $35 from say $70 in a short time before I decided to buy Puts the IV would likely have added a couple of dollars to their price before I bought them making them less appealing at ~3.50 estimating.

You have to take all of this into account when gambling with it (and it is gambling!). Buying BSC puts right now will cost you 3X more than they would have 3 weeks ago so unless you expect them to go down 3X as much it’s not a good bargain. I think they are going into the toilet so I am still considering those.

[capeman]

I just stick to the basics… Stocks that I am very confident in going down (HBs, CFC, etc.) you look at the current price and what the option price is. Say CFC was at $35 (not anymore!) and an Oct. $30 put was $1.50 per contract, it would have to go down to $28.50 or lower by expiration to make money off of it at expiration. I was expecting it to make BIG moves down past $30 way before expiration so there would be multiples in the gains. I don’t stay in until expiration and try to get out way before on the big moves.

The last couple of weeks before expiration you can see Puts deteriorate greatly due to time factor.

Back to the point though. I saw CFC going to ~20 by October so $30 puts would make big money in that respect at only $1.50. If CFC had come down to $35 from say $70 in a short time before I decided to buy Puts the IV would likely have added a couple of dollars to their price before I bought them making them less appealing at ~3.50 estimating.

You have to take all of this into account when gambling with it (and it is gambling!). Buying BSC puts right now will cost you 3X more than they would have 3 weeks ago so unless you expect them to go down 3X as much it’s not a good bargain. I think they are going into the toilet so I am still considering those.

[capeman]

I just stick to the basics… Stocks that I am very confident in going down (HBs, CFC, etc.) you look at the current price and what the option price is. Say CFC was at $35 (not anymore!) and an Oct. $30 put was $1.50 per contract, it would have to go down to $28.50 or lower by expiration to make money off of it at expiration. I was expecting it to make BIG moves down past $30 way before expiration so there would be multiples in the gains. I don’t stay in until expiration and try to get out way before on the big moves.

The last couple of weeks before expiration you can see Puts deteriorate greatly due to time factor.

Back to the point though. I saw CFC going to ~20 by October so $30 puts would make big money in that respect at only $1.50. If CFC had come down to $35 from say $70 in a short time before I decided to buy Puts the IV would likely have added a couple of dollars to their price before I bought them making them less appealing at ~3.50 estimating.

You have to take all of this into account when gambling with it (and it is gambling!). Buying BSC puts right now will cost you 3X more than they would have 3 weeks ago so unless you expect them to go down 3X as much it’s not a good bargain. I think they are going into the toilet so I am still considering those.

[Author]

Posts