trying to get my head around this.

Discussion in 'Trading' started by 151, Oct 13, 2008.

  1. 151


    I am a very new trader. I had an idea today and am certain that it has been done before.

    If any one has experienced a trade like this please let me know what to expect.

    If I am leaving something out that is going to cause me to wipe out please tell me that too.

    Here goes.

    Stock X is selling for 2.50

    3.00 puts for stock X are .75

    If I buy equal shares of X and puts of X am I limiting my risk enough to make this a safe trade?

    I am thinking if X goes up to 3.00 I let the puts expire. I am out 7500 (or whatever) for the puts, but up 5000.00 (or whatever) on the shares I bought.

    So somewhere around 3.25 I break even.

    The exact opposit on the down side.

    If X stays at 2.50 I am out the 7500 I paid for the puts minus the 5k profit I got when I exercised the puts.

    for a loss of 2500, but if the X stock continues down I break even at 2.25

    I am thinking the worst thing that can happen is the stock sits still and I am out 2500.

    Am I missing something?