Playing Options - From Yahoo GX Board
by: luvlizclamanssquawkbox (31/Louisiana)
Msg: 146240 of 146259
During the last 4 years, I lost quite a bit of money on several stocks that I could easily have prevented if I had learned to buy puts. If you don't know how, I strongly encourage you to learn. I learned from, of all people, a waiter at one of my favorite restaurants, who was a broker for Merrill Lynch for five years. He has saved me tons of money. Even better, it's incredibly easy and affordable to protect your stocks with puts.
For example, say GX was selling for 40. I'm estimating here, but you could probably one put (which gives you control over 100 shares), with a $25 strike price,for about $25 or so. So let's say you own 100 shares, now selling for $40. That's a $4,000 investment. For a mere $75, you could own 3 puts, or 300 shares. If the market crashes, or just GX crashes, you will make $300 for every dollar GX drops below $25, minimum (actually, probably more). Thus, if GX falls down to $15 a share, you make a profit on your puts of at least $3,000.00, which offsets the $2,500 loss on the stock you own. Of course, you have to be sure to repurchase the puts before they expire, if necessary. But on a large holding, it's a worthwhile insurance policy.
I'm not real good at puts, but get lucky sometimes. Back in October, I owned a mere 50 shares of JNIC that I had purchased at $40 a share and watched soar to $121. At the time, almost every sector had been killed except storage (JNIC is in same biz as EMC). I figured storage would be taken out next by the big boys, since I believe that a whole lot of collusion was behind the meltdown since Labor Day. So, I bot 3 puts on JNIC with a strike price of around $65. Cost me only around a hundred bucks. When JNIC started to fall, I sold my stock in the 70s, so I only lost some profits, not real money. But I ended up making $3500 on the puts, or $35 for each buck I invested in them. Since then, I have made very nice money buying puts on stocks I stupidly bot way too high, such as YHOO at $165. I managed to recoup almost all my losses on YHOO thru buying puts. I currently own 300 shares of GX, and I bot $15 February puts for a very low price. Probably threw away that money (less than a hundred bucks), but I sure sleep better than I used to before a waiter taught me how to buy puts.
