U do realize u aren't fully hedged w/ just one put... don't you? Your delta on 100 shares of is 100... Therefore you need -100 delta in puts. As an example- if ATM-- delta is approx 50 so u need two... OTM at least 3...
I did not realize that, I know that it gives me some downside protect... I don't have a good understanding of the Greeks, where could I get some good info on the greeks? I was assuming if the price on underlying moved down, the value of the put would cover downside of the 100 shares.... Strategy is based on thinking that if the stock only moves around slightly I can still get good premium on calls to lower my cost basis in stock, if stock is hammered then the put value (i hoped) would cover most of the losses of the stock value... ? Am I in gross error thinking this ?
Yes you are... The whole idea here remember is to make money. Hedging is smart- if done properly and under the right circumstances- but not as part of a core strategy, which by definition- should be designed to generate a profit. Hedging properly is meant to "neutralize" a position...why would you do that as part of your core strategy up front? You follow? In other words- to hedge your strategy- you need more puts...this costs more money...which negates the premium you are hoping to collect to lower your basis. In the end- you have to look at it from the perpective of- "what was the point of this?" If you go with just one put- you are still at risk--but reduced risk...and therefore also still have opportunity to make money--albeit reduced due to the cost of the put. As far as greeks go- Google the subject-- plenty of good info out there.