When Buying Options Makes Sense
This week, I have been talking about using options as a value investor. Selling puts is most often the best options related tool for value types to use. It just makes sense to get paid to buy a stock at an attractive price and can add several percentage points over the year. Most of the time I want to be a seller of options not a buyer. Of course, there are always some exceptions to every rule, and today I want to talk about those. There are two occasions where I favor buying, rather than selling, options.
The first is when I want to short a stock. I have often said I am the world's biggest chicken short. Outright shorting a stock can tie up a lot of capital and you are subject to margin calls if the position moves against you -- as it usually does, in my case. Some of my options-savvy friends sell calls when they want to bet a stock will go down. Although that is a valid strategy, there have been many times when I needed more than one hand to count my associates who have been blown up by being short calls before a takeover or other significant event. That is just too much risk for me to take with my hard-earned money. So, over the years, I have developed my own chicken short style....565 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
There’s no substitute for a trading floor to get great ideas, so Jim Cramer created a better one at Real Money and blogs there exclusively. We then added legendary hedge fund manager, Doug Kass, with his exclusive Daily Diary and best investing ideas. Staffed with more than 4 dozen investing pros, money managers, journalists and analysts, Real Money Pro gives you a flood of opinions, analysis and actionable trading advice found nowhere else, and allows you to interact directly with each expert.
Already a Subscriber? Please login.
