Oh I agree it is definitely a bullish position, and I would never in
my right mind sell naked puts on a stock I was unwilling to own. BUT
in this case my point is that even if I ahave to pny up the $97 one
year from now to buy AAPL I feel it is a great long term
investment.....but thats a huge if, I doubt the stock trades at a PE
of 15 (which is what APPL PE would be if they post in line with
expectations the next 12 months and it traded at $97)
The problem with the put spread in this place, is that you have to put
up a lot more of your own cash. Say $7000 a spread to hopefully make
$3000, so your returns are 35%, and if the stock does trade at 89
somehow, you are at a loss.
Now I never, (no offense intended), would have placed the put spread
at 180 to 160 even with Apple at 200, cuz although I am bullish, at
200 this stock was crazy. I bought at 120 the day the Iphones started
selling in June last year, sold at 140, bought back at 120, sold at
160 and saw it ride to 200, but never bought back in. On a valuation
standpoint, I can easily see the stock drop from the PE of 57 (which
is what it was at 200 a share) to 140-150....and its PE was still 40.
The reason I feel this is conservative is becasue of the valuations we
speak of now....are much lower, and more bullish, even with a market
downturn, PE ratios on tech stocks rarely, EVER go to 15-16....but of
course, crazier things have happened, so of course this is BY NO MEANS
a guarantee.
peregrinepha
...@gmail.com wrote:
> Nice write up. I think I will try that one out soon.
> davi...@mac.com wrote:
> > Selling puts is a good move if you're bullish...I would recommend a)
> > go for short timeframes (ie. Jan 09 is not a great idea, go for apr or
> > jul), and b) use a put spread, or more succinctly, use some of the
> > cash you get from selling a put to buy a lower price, further out of
> > the money put to protect your downside.
> > I had a $180/$160 Put spread (sell the $180, buy the $160) on for this
> > past January which netted me a $9.50 credit in October. As we blew
> > through $180 and onto $200, I could have closed out the position for
> > around $2 in Dec but passed. I was thinking there was no WAY we would
> > ever see my approx. $171 break even when we were sitting above $190.
> > Well, you know the story--we were sitting under the $160 level and I
> > was looking at a max loss on the trade. Man was I glad to have the
> > downside $160 puts as this thing tanked. As we went under $150, I was
> > relatively calm thinking I'm already at max loss (thanks to my
> > spread), so I'll stick it out and see if I can do better before I
> > exit. I was able to get out at an approx. $7 debit--I think it was
> > expiration day, I sold into the am strength. If I hadn't had the
> > downside protection at $160 (ie. naked at $180), I would have panicked
> > at $150 and sold, taking a much bigger loss than I ended up with on
> > this trade. Use spreads, especially when betting against downward
> > movement. Downdrafts tend to be quicker and more severe, so don't
> > leave your butt swinging in the wind...protect it. Word to the wise.
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