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re: Newbie question about put options
Posted on 2/13/13 at 12:42 am to lsuhsc05
Posted on 2/13/13 at 12:42 am to lsuhsc05
The problem with your strategy is that you'll get eaten up in a volatile market, as you'll only be able to profit in a narrow price range (if I'm understanding your proposed trades correctly). And as for collecting dividends on the stocks you bought at inflated prices, if the calls you've written are in the money come ex-dividend date, the owners of those calls will exercise early and deprive you of your dividend income.
Posted on 2/13/13 at 8:41 am to OFWHAP
quote:
if the calls you've written are in the money come ex-dividend date, the owners of those calls will exercise early and deprive you of your dividend income.
That would be ok as I would set the call option for +5% of the put price, so I would have made 5% when they excercise their call. If the stock stays around(+/-) the put price, I'll go long and take in dividends until it gets to the 5% mark.
Volatility could be a problem but if the price drops too low then I'll just go long with the stock as these are stocks I would own regardless. I will have to have an exit strategy for individual stock situations such as what happened with kodak, GM, MCI, Enron etc. In that case I would just have to cut my losses and move on.
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