Today, June 25th, 2010, marked another new stock options investing product for investors. Weekly options, also called short-term options or short dated options, have been available for some time on broad based market indexes: S&P 500 ($SPX), Nasdaq 100 ($NDX) and Russell 2000 ($RUT) for example. Earlier this month weekly options were released for certain ETFs: SPY, QQQQ, DIA and IWM. Today weekly options were released on four popular stocks:
Due to the oil spill in the Gulf of Mexico, British Petroleum (BP) announced it is going to create a $20 bill fund to compensate victims and also cancel shareholder dividends for three quarters. British Petroleum’s current annual %dividend is in the neighborhood of 10%. For those investors invested in BP depending on the dividend, this could be traumatic, especially if they don’t want to sell their BP stock because of tax reasons. What should an investor stuck in this situation do?
Insuring Investments Investors often have insurance for their house, car, life and business, but many don’t have insurance for their stock investments and that is a real shame. One way to insure stock investments is by purchasing put options. An investor can insure an individual stock or a portfolio of stocks using put options. In the blog article, “Individual Insurance or Group Insurance Better?”, we examined the relative costs and trade-offs for insuring each individual stock versus insuring a portfolio of stocks using index put options. The basic gist of the article is that it costs less to insure a diversified portfolio of stocks with index put options than it costs to insure each position individually.