Protecting stock gains by buying calls

T

Tom1am

My intel trade has been very good to me and I want to take some money off the table at about right now. I don't want to monkey with puts, so I am considering the following:

Sell my intel
buy a SOTM (slightly out of the money) call expiry in Jan or so in case INTC goes to $90.

Is this a legitimate strategy to hedge opportunity lost?? Are there any better ways to have less, much less, at risk?

Thanks in advance

PS: With respect to all I have read on here about buying calls, the guy buying my covered calls seems to be doing very well:)
 
Well you could do that I guess but that would be similar to putting a stop loss order on the shares you have (although the options are better)

Basically you need to figure out at what price you would get out if things turned around. Ex: the min i would see INTC is 17.50 so thats about 2.50$ loss.

So sell intel at 20$ and buy at most for 2,50$ worth of calls to benefit from any future gains while making sure that it would be like having had a stop loss at 17,50$ on the stocks you own. The option road is better because INTC might go below 17,50$ and recover after that. With the options you are still there for the potential recovery but with the stop loss well you would be knocked out.
 
If you really want to clean up on an Intel move to 90 in/by January, load up on Jan 35 calls for 2 cts or Jan 30 calls for a nickel. However, you could have a problem if the move occurs in Jan but after expiration. That would force you into something more realistic in Apr where the highest call strike is 23 :)

Back to reality... Taking equity money off the table is always a good idea. In order to participate in an upside move you're going to have to be long calls (or some equivalent). If you want to diminish the out of pocket cost, the alternative is some spread variation that caps some of the upside. Pick your poison. :)
 
INTC to 90? whats that a 400% plus move? Okie dokie.

Selling your common and buying some other calls are not and should not be looked at in the same context. If you're selling your common to take profits thats fine, selling it to buy calls is a totally different mind set and trade. First of all you would have a tax even on the common shares which you may not want if the stocks going higher. The call trade in that case is something seperate.

Why the fear of puts? Calls and puts are exactly the same thing once you really learn options.

If you want to take some coin off the table but still have some upside why not collar a portion of your shares.

Example:

If you're long 1000 shares why not do 5 collars and protect 50% of your profits without a taxable event?
 
Thanks for the comments. First, taxes are not a consideration as this is within an IRA, in addition, because it is in an IRA, the spreads are out.

Xflat, agree with your comments on collars as a possible strategy, but I would rather redeploy the capital into defensive sectors at this stage of the market, I believe there is more opportunity in doing that that hanging in a collar..but that is just my opinion, and I do not know how to get the cash out of a collared position unless the stock is put or called.

I am selling 2000 shares and replacing it with only 20 contracts, Jan $22.50, as a reasonable possible target is $23-24. Les than $800 invested. Please do not make the mistake of thinking I would be stupid or suicidal enouth to blow the whole wad on options.

SpindrO, cheap calls, huh? I think you just nailed the perfect option strategy (for some).

:)
 
Quote from Tom1am:

Thanks for the comments. First, taxes are not a consideration as this is within an IRA, in addition, because it is in an IRA, the spreads are out.
More...
Strategies limited by an IRA account can often be done outside it. For example, buying protective puts in a standard acc't to protect IRA stiock would be claimable on your return if they didn't work out. So spreads might not be out.
 
You must log in or register to reply here.
Back
Top