{"id":13,"date":"2009-10-05T17:31:42","date_gmt":"2009-10-05T17:31:42","guid":{"rendered":"http:\/\/dailyma.com\/faq\/bottom-fishing-or-covered-stock\/"},"modified":"2010-02-09T01:48:27","modified_gmt":"2010-02-09T01:48:27","slug":"bottom-fishing-or-covered-stock","status":"publish","type":"post","link":"http:\/\/dailyma.com\/faq\/bottom-fishing-or-covered-stock\/","title":{"rendered":"Bottom fishing or Covered stock?"},"content":{"rendered":"

Q: I am a member of the DMA and had some questions regarding SRS. I want to enter this trade but do not know if I should be bottom fishing it or buying a covered stock, due to the following:<\/p>\n

– Bottom Fishing: negative skew \/ am considering selling the Oct 9 Put \/ buying Jan 8 Put
\n– Covered Stock: high IV – for each 100 shares bought I am risking around $140, which seems “expensive”<\/p>\n

Any thoughts you can share with them. Is there another alternative I could be considering?<\/strong><\/p>\n

A: It depends on whether you are bearish or bullish on srs.<\/p>\n

The ‘bottom fishing’ trade you mentioned is bearish. You will only make a profit is srs falls to 9 (max profit). You max loss is the debit you pay for the spread and you will have a max loss if srs rises by the October expiration.<\/p>\n

If you’re bullish I would recommend the covered stock rather than the diagonal position.<\/p>\n

The reason why the covered stock is seemingly expensive is because srs has a high beta (high volatlity) so the premiums are generally high but you can adjust the risk by going deeper into the money on the put side.<\/p>\n

You didn’t say what strikes you were going to use for your covered position… but I would look for a put with an .80 delta if you want to reduce your downside risk – you’ll pay a little more for the protection but if srs declines you will have good protection.
\nYou’ll also get unlimited upside potential if srs continues to rise.<\/p>\n","protected":false},"excerpt":{"rendered":"

Q: I am a member of the DMA and had some questions regarding SRS. I want to enter this trade but do not know if I should be bottom fishing it or buying a covered stock, due to the following: – Bottom Fishing: negative skew \/ am considering selling the Oct 9 Put \/ buying … Continue reading “Bottom fishing or Covered stock?”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14,12,16],"tags":[],"class_list":["post-13","post","type-post","status-publish","format-standard","hentry","category-hedging","category-options","category-stock-trading"],"_links":{"self":[{"href":"http:\/\/dailyma.com\/faq\/wp-json\/wp\/v2\/posts\/13","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/dailyma.com\/faq\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/dailyma.com\/faq\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/dailyma.com\/faq\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/dailyma.com\/faq\/wp-json\/wp\/v2\/comments?post=13"}],"version-history":[{"count":0,"href":"http:\/\/dailyma.com\/faq\/wp-json\/wp\/v2\/posts\/13\/revisions"}],"wp:attachment":[{"href":"http:\/\/dailyma.com\/faq\/wp-json\/wp\/v2\/media?parent=13"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/dailyma.com\/faq\/wp-json\/wp\/v2\/categories?post=13"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/dailyma.com\/faq\/wp-json\/wp\/v2\/tags?post=13"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}