Option Strategy to short

Discussion in 'Investing' started by AverageJoesTrades, Jun 2, 2017.

  1. AverageJoesTrades

    AverageJoesTrades Well-Known Member

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    I have a strategy to short a stock, but I want to utilize options for this strategy instead of just selling short.

    My issue is that I don't know much about options other than buying calls/puts.

    The issue I am facing is strike price/duration of time.

    The stock may fluctuate up/down after my signal shows - so I want to make sure that I don't pick the wrong strike/expiration - Is there any way around this? Would I just buy LEAP puts at the money?
     
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  2. Dre4

    Dre4 Member

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    The only way to answer this question is by determining your risk and reward profile for this particular option, since that is how they are priced. If you're willing to take on some risk in order to pay a lower premium, buy a put that is out of the money. If you want to play it safe, buy one that is in the money, but realize that you will pay a higher premium due to the higher possibility of you exercising the option.

    It's not that much different than deciding between a blue chip dividend aristocrat or a lower priced non-dividend paying tech stock like Blackberry.
     
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  3. AverageJoesTrades

    AverageJoesTrades Well-Known Member

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    Thanks @Dre4 I didn't know if there was like a put spread or anything. Also, do you know about rolling puts forward? Is that basically selling and buying a new expiration date?
     
  4. Ronzoil

    Ronzoil Member

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    Let me make sure I fully understand what your trying to do.
    You want to short stocks using options. So that is a bear position. so you could sell naked calls which is an undefined trade. or you could sell call spread in which is a defined risk trade.

    Now if the price goes down as you are hoping you let the option or the spread expire worthless and keep all the money you collected.

    But if the price goes up you always have the option of rolling your options, this would give you more time for the trade to work out and collect more money.

    I do not like to sell naked calls , just think if you would have sold a naked call at the start of the current bull market !
     
  5. Dre4

    Dre4 Member

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    That can be avoided by simply buying puts. By writing options, his max profit is the premium and forfeits any gains from price changes.

    As for your new question OP, rolling options only applies to those who write the options not the buyers. But yes, that is how it works. I wasn't quite sure which side of the table you're looking to be on, but I'm assuming you want to buy puts instead of write calls.
     
  6. Ronzoil

    Ronzoil Member

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    You are correct you can buy put that is a short position. I do not like to open a trade buying puts as it is a wasting asset and if the price goes against you it will add up to a big loss in a hurry. but like I say with options there is more than one way to skin a cat.
     
  7. spindr0

    spindr0 Active Member

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    Any option, LONG or SHORT can be rolled to a different option position.
     
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