Scenario for selling puts

Discussion in 'Options' started by rickf, Sep 5, 2008.

  1. rickf


    General options strategy question here:

    (1) Firm X gets acquired for healthy premium. The news breaks and the stock shoots up to the alleged takeover price.

    (2) I've been long a ton of X shares for decades...I love the company, the dividend, and think it's still a great longterm hold -- but I take advantage of the news and exit the long position for a healthy gain in this goofy market.

    HOWEVER, if the merger does not go through, and X moves lower, or even back to where it was before the news broke, I'd happily resume my long position in X.

    Question: I suspect this would be one of those "appropriate" times for selling (secured) puts, yes? IE, to either let them expire worthless (and keep the premium) or get the stock @ my desired lower price in the future.

    I think this is one of those scenarios, but I'm just looking for some more insights and/or a sanity check on this type of strategy in such a situation.