Using Protection

For those that trade Options regularly this post may not be all that helpful.

There are 3 key reasons/benefits in trading Options:

  • Income
  • Leverage
  • Protection

For those that are new or are just starting out – or have been using them on a limited basis – I want to show just how important they can be in the area of Protection.

I have several positions that were under pressure Friday and in both cases the owning of Puts provided VERY important protection to a downside move in price:

$IOC I am long stock, short the December 13 Weekly 90/85 Strangle, and was long “extra” December 6 Weekly 85 Puts (own 2x the number of these Puts, deal news could come at any time). The extra Puts were needed to protect 2 pieces: long stock & short December 13 weekly 85 Puts (I also have extra Puts on the $SLCA position, prone to be volatile). I closed the 3 Put pieces yesterday for a credit (boosting the Options Net) but of course the stock price decline isn’t as pretty on the P&L.

$GLTS I am long stock (submarine basket) and own the December 90/100/85 Collar (short 90 Calls, long the 100/85 Put Spread). The 100 Puts are well ITM now (price closed at $92.04 on Friday) so the Collar is doing its job

 

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