Thoughts on going all-in on a single stock, hedged with puts to limit downside?
I was looking at selling put options to earn some yield on my cash. But I noticed the premiums are much lower than they were recently. This realization gave me a crazy idea: Perhaps one should do the opposite, and be buying puts rather than sell them.
1.You pick a stock that you think could double over the next 12 months, and go all-in on it.
2.You then buy cheap 1-year puts as insurance to limit your downside.
3.Wait and sell once the stock is drastically up
Of course, this strategy could fail in one simple way: The stock goes sideways, or even down (luckily you have puts in place that limit your downside). But in that case you would “only” lose 10 to 20%, depending on how much you paid for the puts. You could obviously choose to diversify and select 3 to 5 stocks to do this on. But to keep it degenerate and simple, I’ve written this strategy as a single all-in bet.
What do you think of this strategy? Why is it stupid? Why should people not do it? I welcome any thoughts.
$Tesla(TSLA.US$ $NIO Inc(NIO.US$ $Netflix(NFLX.US$ $Ford Motor(F.US$
1.You pick a stock that you think could double over the next 12 months, and go all-in on it.
2.You then buy cheap 1-year puts as insurance to limit your downside.
3.Wait and sell once the stock is drastically up
Of course, this strategy could fail in one simple way: The stock goes sideways, or even down (luckily you have puts in place that limit your downside). But in that case you would “only” lose 10 to 20%, depending on how much you paid for the puts. You could obviously choose to diversify and select 3 to 5 stocks to do this on. But to keep it degenerate and simple, I’ve written this strategy as a single all-in bet.
What do you think of this strategy? Why is it stupid? Why should people not do it? I welcome any thoughts.
$Tesla(TSLA.US$ $NIO Inc(NIO.US$ $Netflix(NFLX.US$ $Ford Motor(F.US$
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doctorpot1 : the payoff diagram of buying stock and buying PUT (married PUT strategy) is the same as buying CALL, capital wise it is more efficient just buying the CALL option.
plus just buying the CALL you have free up a lot of capital that you can either leverage to the max, or use the cash to earn higher interest with tbills etc.
just some additional consideration for you, if you already have an exit price in mind, say 100%, you can also sell another CALL at that strike to lower your cost basis.
shy Cheetah_0241 : Use a IV scanner. I have a few strategies going now with good premium check tsla. 2month iron condor pays 1400 hope that helps
shy Cheetah_0241 : To each there own if it works for you that’s all that matters I would have to have an upside but that is just me.
AdolphnOP doctorpot1: got it
AdolphnOP shy Cheetah_0241: nice~
AdolphnOP shy Cheetah_0241: just FYI