Stock Option Investment Advice

Portfolio Insurance (2017) – Part 1: For the Stock Traders

This article is Part 1 of a series on evaluating the ways to add Portfolio Insurance if you are anticipating a market correction or market decline. Most of us are probably in more Bullish positions, based on the last 12 months performance of the market. Every week new highs are being hit, and bullish stock and option traders have been doing well.   Over the last 12 months, we have seen SPX (S&P 500 index) and SPY (S&P 500 ETF) gain over 17% (SEP 13th, 2016, SPY closed at $213.23 and is currently around $250.00).       During that same time period, NDX (NASDAQ 100 index) and QQQ move up 26% (SEP 14th, 2016, QQQ at $115.85 to about $146.00).     Sure, there were small hiccups here and there along the way, but the extended growth has led to many pundits, gurus and other stock prognosticators warning of…

Stock Option Investment Advice

No Free Money with Special Dividend

I am sure that you’ve heard Costco Wholesale (COST) announced a special dividend of $7.00 per share, plus an additional increase of $0.05 to its regular quarterly dividend. The special $7.00 one time cash payment will be paid on May 26th, to those who are on record as owning shares on May 8th, 2017. What do we expect to happen when a special dividend is paid? Well, we expect the COST share price to fall -$7.00 to reflect the $7.00 one time payment. So, is this a Free Money investment if I were to buy an Out of the Money or At-the Money put option? Since the stock is going to fall the put would have to gain in price, correct? Even though I did not receive the dividend, my put would still gain and I would have a nice, juicy, leveraged profit…right? Not quite. In fact, not at all….

Online Stock Trading Software

How did my option pricing lose $1.00 when there was little to no change on the stock?

Earlier today I received a call from a PowerOptions subscriber. He is the owner of a far out in time put option on MOMO and the stock was up about $0.35 in the morning (Stock MOMO, at $25.76 from $25.41 at close on FEB 14th). The put option he purchased was the 2017-JULY 30 strike. At close on FEB 14th the bid-ask spread was listed at $6.60 to $7.20 – figure a mid-point price of about $6.90. Note: A wide bid-ask spread is not uncommon for options that are far out in time and not actively traded. When he looked at his brokerage account this morning, it showed a value of $5.90, down -$1.00. But the stock had only moved up +$0.35. The delta of the put option was about -0.60, and increase of $0.35 in the underlying should have dropped the put price by only -$0.24. So, what gives?…