Nfld Hedge

L

Linda Options

In a post one indivdual was humble enough to share his experince in NFLD and mentioned that he was down 24% on the trade. This was actually fortunate as he would be down about 70% had he not been quick on the draw and sold the shares out.

A great lesson can be learned from this about options. Had this person bought the 15 strike put and sold the 17.50 call he may have had to pay $0.50 a share, but would only be down $0.50 right now and would still own the shares ate the bottom.

I can't ephasize the benefit of options for protection enough now that the Dow is at all time highs and the VIX is at lows.

Some great sources of information for options if you are new to them are found all over the books section of this website under OPTIONS.

I personally think the easiest books to understand on options are critical when first starting such as:

Stock Options for Dummies.

Then for those who are familiar with the basic concepts of options there is a book dedicated to doing collars to protect stock, the only one I have seen like this. It has a cook book like recipe that is almost too easy to follow but is also for advnced traders. It is by J.L. lord and can be found on his website randomwalktrading . com. It is a $300 book but worth 100 times that if you get yourself to save on stock trades.

Then an advanced one for the math geeks is:
The mathematics of Options Trading by Carol Curtis.
Women have to stick together you know.

Hope this helps as the traditional buy and hold advocated by brokers is a losing proposition.
Linda
 
yes, hindsight is always a great timing tool

one wonders if there was actually a need for books on this one. Some due dilligence would have shown that NFLD was waiting for critical FDA results on its artificial blood product. A small company with one product...hmmmm...how much does one have to lose in order to learn that the eventual move would be big? and hard to be quantified by any stretch of the imagination since it was the only artificial blood product that has ever reached phase III trial w/ no competitors in sight?

In fact there was a thread on this stock several weeks ago where folks were just happy selling premium in deep OTM puts....hhmmm...I wonder again...how much does one have to lose to learn that if results were bad the selling pressure would just get magnified by year end tax-loss selling?

:D
 
Quote from Linda Options:


A great lesson can be learned from this about options. Had this person bought the 15 strike put and sold the 17.50 call he may have had to pay $0.50 a share, but would only be down $0.50 right now and would still own the shares ate the bottom.
More...
That combo would have cost around $2.00 on Monday ($4 for the put, $2 for the call), when he bought the stock (at $15), not $.50.

At the end of the day, when the stock was at $11.42, $3.50 lower than his purchase price, the option combo was at around $5 ($6 for the put, $1 for the call), a gain of $1, for a net loss of $2.50.

If he held all those now, with the stock at $5.10, the put at $10.90, the call worthless, he'd have a net loss of $1.

That put will decay, and the potential payoff at expiration:
stock <= $15: loss of $2
stock >= $17.50: gain of $.50

If those $300 books your friends are selling are pushing those kinds of risks/rewards, I think I'll pass on buying them.
 
Quote from Linda Options:


I personally think the easiest books to understand on options are critical when first starting such as:

Stock Options for Dummies.
More...
The reviews on Amazon for that book point out that it's about ISOs and NQSOs, not about ordinary equity put and call options. Do you still recommend it for people who want to trade options?
 
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