Hi everyone, how are we today with BHP down 4%? I shorted it in the US on Friday night accidentally (too many wines) and rather than use up a valuable day trade (restricted in US for small accounts) decided to cross my fingers. Pure luck. Actually, some of my biggest winners have been trades made in error!
I've been looking into options recently and the collar trade has captured my interest, calendar spreads a close second. I love the idea of being long an asset then protecting it with a put, then selling calls to firstly pay for that put and then after than to earn income. I can't quite get my thick head around it - it seems like a great strategy. Maybe someone can tell me where I'm missing the point.
Example, buy HPQ at $40, then buy a Jan 2009 $40 put for $5.50 which gives me long-term downside protection. But the cool thing is I can now write calls on HPQ every month until 2009! I've noticed that it generally takes three months to pay for the put with three written calls on the front month depending on the stock and volitility (V) etc, but that still gives me tons of time to write puts for pure income. So even if HPQ blows up and drops 50% I'll still own them and will have the LEAP to cover the damage, and I can just keep writing calls on it. So, I don't really understand the downside very much.
One thing to note is that ideally you want to sell high V calls and buy low V put/s ie V skew, but how does one go about IDing such options without sitting for hours on end looking at option Vs. Any good software/web services that can provide that function?
BTW, really enjoying studying options - can't belive I put it off for so long. Options are way cool! Cheers.