Quote from masonyes:
The market overreacted the other day due to an "error" and the greek crisis; so how are you going to respond? Are you going to take advantage of the lower prices and buy calls or do you think the market will continue to fall and buy puts instead? Do you think the decline is temporary due to the greek crisis, a correction that is going to continue or what?
Thanks
You must be new to options trading judging from your questions. That's fine, welcome. No one knows the answers to your questions but there are plenty of folks who will answer with their opinions. It is best to form your own opinion though. As a suggestion, look at the chart of the S&P (daily and weekly) decide where the support levels are and see where we are relative to those. You'll notice that puts right now are rather expensive. There is a reason of course. They are in demand because obviously many are expecting further downside. You have to make your own mind up whether it is worth buying puts right now, depending on how much lower you think the market will go. If you're new to this, it might be best to sit this out and just observe. Use the time to read about options and learn. If you were going to buy some puts at this point you would probably wait for an up day and for the VIX to fall a little. And if that doesn't happen -- well, nothing ventured, nothing lost. You don't have to trade. It is usually best to wait for a good entry or not trade at all.
If you thought that the market might eventually -- maybe late May, or June, get down to say the 970-1050 area, you might just wait. (The timing is the tricky part and even the best traders have trouble getting the timing right.) Then if it happens and you think we are near a pretty strong support level on say both the daily and weekly charts, and perhaps the monthly too, consider selling some puts, maybe a couple months out, on some stocks that are paying healthy dividends. A big dividend tends to put a floor under a stock's price and makes it a little less likely that the stock will fall much more -- once it is paying a big dividend it probably won't fall much more because then the dividend would be ridiculously high (maybe
). Near the bottom the VIX should be high and puts very expensive so that is a nice time to sell them to somebody else. Then if you should get assigned on your short puts you'll end up owning a nice stock at a decent price that is paying a big dividend, and if you don't get assigned you'll make some nice cash on the short puts as the market recovers.
We have an important election coming up in November, so you might think about what the market usually does before important national elections. Just some things to consider. (Some people will undoubtedly tell you that selling puts is dangerous. It can be, but not if you do as I suggested and wait for the market to reach strong support and back them with cash.)
And, if you are not new to trading and options, then why would you ask the questions you did? You should know the answers.
P.S. Though i said nothing about put and call spreads, you should consider them because that is a nice way of limiting risk, but of course you give up some profit potential in exchange for lower risk. If I think the market has fallen quite a lot and is at strong support and will very likely rise some I would generally favor just selling a put over a spread, but spreads are more conservative.
