$20 stock, I think in the next year it will be in the $10 range, in 2 years I think company will be nothing. Bottom line, extremely bearish about the company in general and think it will go lower each month. Other than just shorting the stock now...what is the best option strategy for me to take with this?
Puts increase in value as the stock price falls. Buy time to be correct... 3-4 months or a year out (depending on your level of patience) Buying the str8 put gives the best profit potential - or make it a spread to save money but also, you limit profit... everything has a price. I would say the calendar would be the one I play in the situation you describe but that is all personal opinion. Just curious, what stock is this?
Buy put sell call. Synthetic short and it gives you some leverege if you really feel like maxing out you acct on the stock (p.s don't)
Best is hard to define. It all depends on the timing, how much risk you can tolerate versus how much reward you want. Each strategy offers a belnd of R/R. Check out the bearish strategies at: http://www.optiontradingtips.com/strategies/index.html http://www.numa.com/derivs/ref/os-guide/os-02.htm
10$ puts are a suckers bet unless the stock craters imo ... if the stock just does a slow decline towards 10$ you'll never see a profit on those 10$ puts. Better to buy the 15 or 17.50 puts (and sell the 10 puts or not imo). If the stock is still holding up around late Nov/early Dec then sell to get some of your money back and buy the Mar 08 puts if you still think the stock should tank. Don't blow your wad on the first put buy cause even crappy companies can stay at a high stock price for ages... (see GM)