How Options can help in protecting a position

For those that follow my trading you are well aware of how frequently I involve Options in my trades. One of the key uses for Options is in providing protection and you don’t have to look any further than $XONE to see just how critical Options can be in protecting a trade.

I have had a position in $XONE in the Long-Term account since 09/06/2013 and coming into this week I was long at $55 (since 12/24) with short March $50 Calls and long the April 50/35 Put Spread. These Option pieces are called a Collar PS (put spread). With the weakness in the 3-D printing space I wanted to be extra careful this week not to be complacent with the position (just because it has protection).

I ultimately set a Trail Stop on the stock and it did hit on 03/21 leaving me with the 3 Options pieces. The Collar PS became a Bear Risk Reversal (at least for the day as the short Calls were for March – and they are expired now).

I am left with a Long April 50/35 Put Spread and it appears that it may be close to being capped very soon given the very weak finish for that group of stocks for the week. $XONE closed at $36.22 for the week.

Although I show a loss on the stock of ($12.90) overall (several stock trades) there are several things to consider:

1) The Option Net is substantial and becomes part of the overall plan for the trade

2) The Put Spread has $15 in value to achieve

 

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