About 'stock value'|Goaltending stock values volatile
Rather than use only as speculative and high-risk market plays, strategies like the synthetic short stock position protect against downside loss and, unlike the better-known covered call, offer a practical alternative to selling and taking profits. Its construction has three parts. For every 100 shares held long, you open a long put and a short call at the same strike. If this position is opened at or near the basis in stock, it is a senseless position. If the stock moves up, the call is assigned and your stock called away. If the stock moves down, you exercise your put and sell at the strike. In neither event is there an opportunity for profit. Now look at the synthetic short stock in another way. Let's assume you bought stock well below current market value and you have two issues in mind. First, you are willing to sell now, but you're not sure if that is a good move. Second, you are tempted to sell because the stock price could easily decline and you would lose part of your paper profits. In this situation, the synthetic short stock makes sense. If the stock value falls below the strike of the options, the put's intrinsic value will offset the loss. You can either sell the put to take the profit, or exercise the put and sell shares at the strike. The put costs nothing because the value of the short call offsets it. If the stock price rises above the strike, the call will be exercised. To avoid exercise you can close the position or roll forward. So you achieve a degree of protection against downside movement while accepting exercise (or avoiding it) on the upside. To gain more perspective on insights to trading observations and specific strategies, I hope you will join me at ThomsettOptions.com where I publish many additional articles. I also enter a regular series of daily trades and updates. For new trades, I usually include a stock chart marked up with reversal and confirmation, and provide detailed explanations of my rationale. Link to the site at ThomsettOptions.com to learn more. I also offer a weekly newsletter subscription if you are interested in a periodic update of news and information and a summary of performance in the virtual portfolio that I manage. All it requires is your e-mail address. Join at Weekly Newsletter I look forward to having you as a subscriber. |
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This forgotten technique developed by Ben Graham can help identify potential bargain stocks. Also, Other Value Strategies, Real Estate, and more. Send feedback to: cheapstocks@verizon.net
Using Peggy Method and Dollar Cost Averaging to Invest. Bursa Malaysia KLSE KLCI. Add me in your blog and visit me often.
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