Registered: Sep 2006
09-30-12 06:33 PM
Quote from Don87109:
Usually it's better to buy an OTM Put and buy the stock instead of buying an ITM Call. At the same strike the position is equivalent and OTM Puts usually are more liquid and have better B/A spreads. Of course, the drawback is that the cash outlay is greater and one more commission.
Don! Yes, the same argument can be made for the OTM CC vs. the ITM NP.
Cereal, it's not likely that you're going to get those prices. Who's going to sell you the March for below intrinsic value. Probably have to pay the high end to get in. Add .10-.20 to those prices.
And on the exit, likely more slippage on the ITM calls. (Unless you exercise out. ) Hence, Don's suggestion.
Compare the likely costs of these trades to UL at 50% margin. Not the same trade, but similar over a wide range.
Compare other hedging techniques to your idea or Don's. You may find that buying long term very OTM puts is not the best way to go, but that really depends on how you want to trade it.
I'd go with the UL/put trade in most situations.