Aphie, This is just a thought, but consider it as an option. If you were holding the Nov 55 put, you had about $1 of time premium that was at risk. If you were to short MSFT in the aftermarket at $55, you could use that same $1 of risk as a stop. I think if you look at the yearly chart you will see a down trending 200 MA just overhead, this would also make a logical stop. If on Monday it opens down you could cover. If it opens flat you could sell the Nov 55 Put against it. If it opens up, you can wish you never read this post. I am not suggesting that you TAKE this trade, but it is out there to get you thinking about different options available to you. Regards
Nice little bull trap over 55.50. ------------------------- Aphie, what happened to you. The last post I read of yours had to do with some Nov. IBM puts, or something like that... Did you make that work for you?
trdrmac, I don't understand your suggestion mitigates risk. Is it supposed to reduce the theta? If it is, wouldn't it increase the delta also? I was thinking that he could have bought the underlying at a ratio to his puts in order to create gamma going into expiration. -------------------------------------------------
DTK, I was not (read can't) think along those lines. If he was holding a Nov 55 Put and the last trade was at $1, he has $100 at risk, by at risk I mean if MSFT closes above $55 next Friday the premium vanishes. Now if he simply shorts MSFT and uses $56 as a stop, he is still short, and could benefit from any downside that comes. Of course the risk is that MSFT gaps up huge and he gets squeezed like a little piggy. That risk does not exist with the put. But with the short, he has the option of selling a put short against the short MSFT, which in my mind is a decent position to be in with 1 week until expiration.
This was the last news about MSFT before the drop but it certainly doesn't explain it: http://quote.bloomberg.com/fgcgi.cgi?T=marketsquote99_news.ht&s=APcweRxCpTWljcm9z
I cut my losses on the IBM puts and then basically broke even on the MSFT puts when they spiked up. In hindsight, I couldn't do anything with my options after-market, but I realize now that I could have checked the DELTA on my puts and hedged them by going long on the stock before the judge made the ruling. Live and learn -- but the lesson was learned.