Are put options good insurance against a stock going south on you?
Answers: <<<Are put options good insurance against a stock going south on you?>>>
Used correctly they can be. They can be very effective insurance, but they can also be very overpriced.
I have to take exception to some things said in the first two responses.
Mike Hunk said
"A put option is an option to sell a share of stock at price X. For example, if you have an option to sell at 40 and you excercise the option, but the market moves up to 50, you lost $10 because you may have to purchase a share for $50 only to sell it for $40."
All that says is that if you sell the stock short at $40 and cover the short at $50 you lost $10. It has nothing to do with options. The owner of an option is never forced to exercise it.
edco said:
"If the stock is at $100, buy the $80 puts. If it drops 10 points to 90, even though you dont hit the strike, they'll still go up."
That is not always true. If the price of the put was unusually high because of a scheduled event, such as an earnings announcement, it is entirely possible the event will drive the price of the stock from $100 to $90 but the price of the $80 put will go down, not up.
edco also said
"I have been selling covered calls on up days. It does the same thing, except I get to keep the premium, and therefore lower the cost of my shares."
Selling a covered call has a very different risk/reward profile than buying a protective put.
The maximum profit from selling a covered call is limited to the premium received. The maximum profit from buying a protective put is only limited by the fact that the price of the stock cannot go below zero. The maximum loss possible from the stock plus a covered call is also much higher than the maximum loss possible from a stock plus a protective put.
They can be, but it's a gamble just like any other market gamble.
A put option is an option to sell a share of stock at price X. For example, if you have an option to sell at 40 and you excercise the option, but the market moves up to 50, you lost $10 because you may have to purchase a share for $50 only to sell it for $40.
In short, it will act to your benefit if the market stumbles. However, it's not more of a sure bet than a more conventionally structured security. You're just playing the other side of the table, that's all.
As long as you think of it as insurance and not an investment, ie if the puts go to nothing, you acknowledge that it was a payment for the insurance.
My advice is to use them as DISASTER insurance, ie out of the money and 2 months or more out.
No need to pay for the volatility unnecesarily.
If the stock is at $100, buy the $80 puts. If it drops 10 points to 90, even though you dont hit the strike, they'll still go up. Just dont get greedy..which is what always nails the option trader.
Set the price in and the price out. ie, Buy them at a $1, and sell them at $3..dont wait for them to go to $4 and watch the time premium erode the value.
Good Luck
PS. I have been selling covered calls on up days. It does the same thing, except I get to keep the premium, and therefore lower the cost of my shares. Even if it stays flat, I make money.
Put options are an excellent means of protecting a stock that you are concerned will drop in value. Of course, if you're concerned about the stock falling in value you need to question why you're holding it in the first place.
In general, we like to buy stocks and other investments when they price low and then sell them at an appreciated price level. It's the old "buy low and sell high" paradigm.
Things get a bit gut wrenching when the economy and the markets turn sour. As we began this new year, the markets were quite problematic and they have remained so up to this point.
My guess is that we will see further declines. The real question is how do you position yourself in expectation of further selling, while not becoming directionally over committed. I shared some insights in a recent blog post, and I welcome you to give it some thought and post any questions or observations that you might have.
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Us Investing visa ?
Us Investing visa ?Do you know the requirements ? do i obtain a green card or i become a citizen ?
Answers: There is a U.S. visa for investors. Qualifications include one million dollars invested within a commercial enterprise in the United States employ at least ten workers. There is also a keep a tight rein on on the number of investor visa's the U.S. will issue. See the link below for more information.
Once qualified, the investor can apply for a two year conditional green card. If still present within the United States after two years, and still meet the requirements as an Investor and green card holder, the applicant can apply for a irredeemable green card. Then normal rules for naturalization apply.