Shorting on downticks (3/16/05)
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IF a trader has access to options he can buy a PUT and get filled instantenously on it. The best PUT to buy to get your short price as close as possible to the last trade price is a deep in the money put with the strike price as close to where the stock is trading as possible. So by going to the first strike price where the Call value is ZERO this is the best PUT to buy. BY buying this PUT you get short approximately 7-10 cents lower than last trade price. Once you have a Put you cover by buying stock like you would any normal short. ANd then you can sell stock normally on a downtick b/c now you actually own it.
This is how I have been getting short for last year and half.
NO need for selling a call this only ties you up and makes you pay intrest till expiration. ALso this limits your upside. If a stock cures cancer or gets bought out and goes higher than your put strike price,-------- (remember) you still own the stock. And you can sell the call and realize your profit on the stock by selling the call.
Cheers
This is how I have been getting short for last year and half.
NO need for selling a call this only ties you up and makes you pay intrest till expiration. ALso this limits your upside. If a stock cures cancer or gets bought out and goes higher than your put strike price,-------- (remember) you still own the stock. And you can sell the call and realize your profit on the stock by selling the call.
Cheers
LOL..I think its you who is smoking the "nice weed" you misunderstood ...NOT Out of the money Put's (ootm) ----DEEP in the money PUTS.
You buy a deep in the money PUT that is so deep in the money that there is no bid for the call.
Then you subtract the PUT premuim from the strike price and you will see that you are short 7-10 cents lower then where the stock is currently trading.
The purpose of buying a PUT is to be in a position where you are short the stock as close as possible to the trading price of the underlying stock. A regular PUT will not get your price close enough to the actuall trading price of the stock as a deep in the money PUT will. If you buy a regular PUT you will always have to also sell a CALL. If you buy a Deep in the money PUT where the Call value is zero, then your price from where you are short is usually 7-10 cents lower than last trade price of the stock.
The premuim of a deep in the money PUT is usually very big and therefore firms don't get them for traders b/c in their eyes it ties up capital.
So after you cover your short position by buying the stock, you are only long the Stock (equity) and the PUT. And this position leaves u room for upside. If the Stock rallies close to or past your strike price, then you can actually make money by selling the CALL that has now risen in value. WIth a regular conversion you can't have any upside on selling the call b/c the CALL was sold at the time the PUT was bought.
It's all just a question of your firm allocating you the necessary BP in order to do the Deep in the MOney PUT.