Hedge my ITM leap position - need help

Discussion in 'Options' started by seotrader, Nov 25, 2009.

  1. Hello,

    I want to buy deep in the money GOOG 410 JAN11 call at around 20,000$
    I want to sell covered calls every month against it ( for the next month) , an average of 2% per month

    I also want to protect my invested capital in a not very expensive way

    For example the JAN11 580 put cost 6810$ and the MAR10 580 put cost 3150$ which are both very expensive.

    I just wonder if someone has a strategy to protect your leaps position using puts but in a cheaper way.
    because for example if i'll buy the MAR10 , its 15% of the invested capital just for 4 month protection

  2. MTE


    The more protection you want the more you have to pay for it. There's no way around this. There's always a trade off somewhere. For example, you can buy put verticals instead of a straight put to reduce the cost, but the trade off is that you are not protected below the short strike.

    Maybe you should reduce the size of the original position.
  3. stockgood


    :D :D :D :D
  4. First the ITM position should have as less time value as possible.

    I want something to be almost like stock replacement.

    Without the obligation of doing dramatic price upward , because I make my money from monthly covered calls.

    Regarding to the spread - we are talking about JAN11 vertical spread?

    In that case it still kind of expensive, so I'm looking for a way to finance it ,

    maybe buy selling another spread ( call or put) or naked put of some opposite index.

    Some index that won't be so correlated to google moments.

    Then my insurance cost will be 0$

    Do you have any ideas of such indexes?

  5. MTE


    You are missing my point. It doesn't matter which spread you use. I just gave you an example.

    The point is that you cannot have insurance without giving something up for it. There's no free lunch. As to what you give up depends on the hedge. It can be an outright cost, a cap on your potential profit, only a partial hedge, etc.

    When you consider all the costs and complications involved, it is possible that the best way to hedge/reduce your potential loss is to reduce your position size.
  6. spindr0


    The Big Lots store offers puts for 1/2 price. Grab all you can! :)

    Seriously, you need to look at some risk graphs because cobbling a strategy with random parts isn't going to end up in a good place.
  7. spindr0


  8. I checked all with thinkorswim risk profile

    thanks for your help ?
  9. Hello

    I'm aware of the risk of google drop in price .

    I guess I won't find some good strategist in this forum.

    Don't worry I'm aware of all risks

    And thanks of your advice to use mutual fund after they lost me 40% at 2008.

    Now I know that even a moron could anylize a little the market and would sell all before the big drop ( or buy puts...)
  10. spindr0


    PS MM = Money Market
    #10     Nov 26, 2009