| Topic Name: |
ACN Share Price |
| Message Name: |
both of you are right |
| Date Posted: |
02/09/2006 |
| In Reply To: |
The put expires in May. You have to buy new contracts after that. That's where I get the $2800 number.
Again, this is a stupid way to hedge and no professional would ever do this. At the very least you should delta hedge such that you aren't putting an option contract against every share of stock.
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| Message: |
yes, in most circumstances, it is stupid to buy 1000 shares and then buy 10 puts to hedge. However, in certain special circumstances, it makes perfect sense. Example, say you bought stock XYZ around March last year, now the stock just had a huge move this year. You don't want to sell it until at least March this year because of the short term capital gain implications. But you also would like to lock in your gain. In this case, it makes perfect sense to take out a short term insurance policy by buying 10 March puts against your 1000 shares of XYZ.
And no, just because you sell shares of your own company does not automatically make you guilty of insider trading. But it does create PR nightmare and the impression of insider knowledge.
Bottom line, option is just another financial tool at our disposal. When used properly, it can hedge our position and serve a great purpose. I think we can all agree on that.
We are way off our original topic. But I digress...
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