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Are you bullish the security? Are you bearish volatility? Those are the two positions that you are taking? If that this the position you want to be in, based on your analysis, then this would be one strategy that would work if what you expect to happen happens. If you are not bearish volatility, but are bullish the stock, then this would not be as good of a good position.
Of course it is important that you understand what selling options is all about before entering into a trade like this. And even more than that, the easiest to manage position is the simplest. In these times of wild market action and liquidity pockets, it is best to keep your position as easy to manage as possible. That means stay in the most liquid contracts. Long options are better than short options in time of volatility, not only because of the risk, but because of the control.
Keep it simple and keep control of your risk.
Regards,
John J. Lothian
Disclosure: Futures trading involves financial risk, lots of it!
In a message dated 3/26/2003 1:12:44 PM Central Standard Time, prosper1000@xxxxxxxxx writes:
Let's say that a security has been going up and it has leveled off
and it has fairly high volatility. So I sell an at the money put,
then I turn around and buy the underlying security. You thoughts
appreciated.
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