I am a very new trader. I had an idea today and am certain that it has been done before.
If any one has experienced a trade like this please let me know what to expect.
If I am leaving something out that is going to cause me to wipe out please tell me that too.
Here goes.
Stock X is selling for 2.50
3.00 puts for stock X are .75
If I buy equal shares of X and puts of X am I limiting my risk enough to make this a safe trade?
I am thinking if X goes up to 3.00 I let the puts expire. I am out 7500 (or whatever) for the puts, but up 5000.00 (or whatever) on the shares I bought.
So somewhere around 3.25 I break even.
The exact opposit on the down side.
If X stays at 2.50 I am out the 7500 I paid for the puts minus the 5k profit I got when I exercised the puts.
for a loss of 2500, but if the X stock continues down I break even at 2.25
I am thinking the worst thing that can happen is the stock sits still and I am out 2500.
Am I missing something?
If any one has experienced a trade like this please let me know what to expect.
If I am leaving something out that is going to cause me to wipe out please tell me that too.
Here goes.
Stock X is selling for 2.50
3.00 puts for stock X are .75
If I buy equal shares of X and puts of X am I limiting my risk enough to make this a safe trade?
I am thinking if X goes up to 3.00 I let the puts expire. I am out 7500 (or whatever) for the puts, but up 5000.00 (or whatever) on the shares I bought.
So somewhere around 3.25 I break even.
The exact opposit on the down side.
If X stays at 2.50 I am out the 7500 I paid for the puts minus the 5k profit I got when I exercised the puts.
for a loss of 2500, but if the X stock continues down I break even at 2.25
I am thinking the worst thing that can happen is the stock sits still and I am out 2500.
Am I missing something?