Call me crazy, but I think the dow will be at 9,000 6 months from now. What put option should I buy based on this belief? I'd like the one that has the highest delta. In other words, if the market fell today, the option contract should go up in value. Am I making any sense?
As per your request: you're crazy... Just sell the index outright. That satisfies your requirements just fine.
I wouldn't just buy a put option, because the risk is high and you may just lose the money. I would go for a bear spread - buy a put option in strike X and sell a put option in a lower strike. Advantages: you neutralize the time factor, and the risk is limited.
That makes perfect sense if you take you position and the market falls today. But in the real world, that rarely happens. Regardless of the vehicle you choose, you might first consider determining how much your position will lose each month if the DOW trades in a box or continues rising. That perspective might help with your decision. If you're expecting a 9/11 type of event then you have to be positioned now and you run a higher risk of loss. If it's something like a double dip recession, you can wait for degrading economic reports and dropping markets and then ramp up the short position. Dip your toe when you see it and dive in when you believe it.
Might be stepping in front of a freight train however. :eek: Who knows what Obarmynomics will turn up in the time frame? Another million billion trillion in stimulus for e.g.? Scalper007, The "best" put option or "best" strategy can only be determined after the event. The best you can do is figure out the scenario you want to trade, how to cover your arse, and put on a strategy that suits that particular view. Polish up that crystal ball and place your bets.
Indeedy... However, the OP wanted a 'put option that has the highest delta'. I aimz to pleeze. As to the stimulus, it's a well-advertised fact that a large chunk of the current stimulus is to be disbursed to various recipients (mostly local govts) throughout next year.
Thanks for your replies fellas. Jun10 puts on dia is one option. How do I "sell the index outright"? By the way, I have no idea how to do a bear spread...How about a detailed example? Thanks a lot.