Basic Training: How to protect your profits.
- Easiest method: 1st buy a 2-3- month put ATM or slightly OTM put.
- Purchase an ATM put spread with the short leg at your break-even point. Easiest to do in a single stock or underlying.
- What to do if you have a broad equity portfolio? Its a little more complicated. Determine the effective beta of your portfolio an how many effective shares of that index you own.
- Rule of thumb - Expect to spend about 2% of your portfolio for effective 3-6 month protectionHow to reduce the cost of protection. Buy a spread instead of an outright put. Set up a collar. Set up a collar with a kicker.
Mail Call: Listener Questions and Comments
- Question from Big Charlie - Hey guys. What is your take on the OH/Monster merger? What does this mean for the options landscape going forward?
- Question from Brian Collamer - Hi Mark, If I have a short call in $SPY on the ex-dividend date that is OTM, I will not owe the dividend correct? Thanks, Brian
- Comment from Justin - Hi Mark, Just heard my question on the podcast! Awesome! Thanks so much. Keep doing what you do. And I will keep listening. -Jay
- Question from Niles F. - How much of my portfolio should I allocate to defensive strategies such as protective puts? Thank you for answering my question and for producing this fine program.
- Story and Question from KAISERDOG76: Funny story- I was trading on my IPad. It is the Summer 2013. CNBC is on but I am not paying attention to it. I had some cash to play with and there was some electricity in the air that day. I settled in on Apple options. This was the first and last time I used mini options. In total I spent $2,800 in capitol for options. !,400 I spent on 3 or 4 regular Apple options. Then I spent equal amount on Apple "Mini" options. This was when Apple was trading below $400 if memory serves true. Well no sooner that 10 minutes after I had completed my order and was filled on those calls? Some guy named Carl Ichan came out and made his first "Famous Apple Tweet" LMAO. I got an instant $20 plus move on the stock. My Calls I had just bought? Exploded as they were now deep in the money. On the regular Apple options I instantly made several thousand dollars? You know what I made on those Mini's? After Commissions and such it was a few hundred bucks. I was so pissed and felt just ripped off. So I have never touched a "Mini" again. Why would I right? With that kind of move and you still cannot make any real money? Forget about it. Minis are Dead to me...The VIX flirting with $11? I wish I bought some calls today too. LOL...So If I do not have a futures account. What is best way for me to hedge using Volatility? Please help a hopeless Bull who wants to get into insurance.:) Thanks for all the insight and education!
