How Do I Express This Using Options?

[gary.chen 10]

I own 200 shares of stock BIDU. This is a big position considering the size of my portfolio. I believe that

 

a. In next 4-5 months there could be a big UP(+20%) move.

b. But in next 3-4 weeks the price may go sideways or retrace down (-5%).

 

I do not want to sell my shares right away. I would like to hang on for another 4-5 months. How could I express the above belief using options?

 

Thanks a lot!

[veAL 10]

case a) you can buy calls or sell puts in about a month when you think there is no more room to the downside. but always if you sell a option you do have a obligation to fill the buyers demand, if there is some. this option would furter increase the portfolio position of your portfolio. be aware of this!!!

 

case b) you can buy a put or sell a call. selling a call also has a obligation like above here if the BIDU share rises e.g. to 150 you will have to pay for each option = 100 contracts the inner price plus the time price for your contract. this can get very expensive if the share rises but if your belief is right you earn the Option Premium and can buy back the call on lower prices for much less. If you consider selling a call right now you can look for a call with a strike price of 120 to 125 an ATM (at the money) call to light in the money call. They have a good delta and are highly sensitive to the stock prices.

 

If you have time you can read about the greeks here:

http://www.traderslaboratory.com/forums/options-trading-laboratory/15473-usefulness-option-greeks.html

 

or just ask your broker dealer to look for the right option for you ;-))

 

hope this helps a little

veAL