Can the PUT option plays on the report also be used where one could go SHORT. Or, do you advise PUT and SHORT on a play or alert when that is the case? Next, several trailing stops were triggered last week. How does the alert service provide us with where a trailing stop should be set once an alert is triggered? (June 30, 2003)
We prefer buying put options on downside plays because we know going into the play what our maximum risk is. In other words, the most we can lose on a put play is our investment in the option if it eventually expires without us selling it or exercising it. With a short sale if the stock runs against you it can keep running higher and higher and your loss can theoretically continue mounting higher and higher.
That said, put option plays can be used for shorts as well, though we figure the return for the play based on buying a put (which means that the percentage of return on the play is based upon the delta, the option price, and the distance we feel the stock will move) versus the percentage gain if the stock was shorted. In many cases the put play delivers a better return than an unmargined short sale.
When we issue a trailing stop alert, that means it is time to take the money off the table. The report shows the suggested stop points, and when we are ready to close a position that is when the stop or trailing stop alert is issued. That is the time to take action.
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