April 14, 2010
– Comments (10)
$19 strike puts are 15 cents now right before earnings.
You can thank me later.
are you suggesting to buy or sell?
The stock is trading at $19.25. That's the cheapest insurance you'll ever find.
Have you pilfered any bier lately? ;)
lol, you must have seen cato's last thread.
rigweltered sounds serious. ;)
I don't know if the majority of readers will understand you're play, but I appreciate the reminder.
This type of play is for those who OWN an equity, earnings are due out around options expiration, and you want to HEDGE your investment through earnings. If earnings are good, the stock you own will go up and your Puts will expire worthless. If the market reacts negatively to the earnings, then you exercise your PUTS and the stock you own going down won't sting (as much).
Good idea, Chris, thanks for the reminder. Technicals would suggest that GE will do just fine for earnings, but why risk it when insurance is that cheap. I don't watch the earnings calendar NEARLY enough!!!!!! I almost always guess wrong, and I don't like trading in and out of my core holdings. Cheap options are a good play.
Thanks TSIF, I should have explained more.
If you want a free hedge, you can sell the May $21 calls for 16 cents and buy the APR $19 puts for 15 cents. You lose a shot at more upside that way, but you guarantee yourself a profit if you bought at a decent price.
I own GE but I don't see the need for insurance. I plan on holding GE for a very long time (avg share price ~$13), and if it misses earnings and drops, ill buy some more.
bracketbuster88, insurance on a home, a car, your boat, your health, long term care, etc, are all in the eyes of the individual. Insuring your LONGS from time to time in this volitile market is a play that some of us appreciate. You are correct that if you are long and have faith in a company that the end result may not need any midterm guidance. Many people trade in and out too much. The benefit of options is to insure in the short run and profit from what you already hold. It works very well as short term insurance against your getting the flu and needing a doctors visit. Again, however, it's not for everyone, but I've learned the hard way that I'm not always right about ANY equity, and my piece of mind does better if I don't take large hits.
Thank you, Chris, for the information. Thank you, TSIF, for explaining. I don't play the options market - yet. However, I enjoy learning about the market every time I come to TMF.