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Stock Profile - GOOG - Google
posted Sep 09 '11 by alex
Report is ready. We are going to publish it on September 12th. Fill free to criticize, comment and ask questions about Google in this forum thread.

GOOG Option Strategy based on report target entry
posted Sep 12 '11 by newmansk
Since Pawan suggested an entry at $456 I suggest we get paid to wait for the stock to come to our levels in the mean time.
It's a very simple strategy for all investors even if your a novice to options trading.
I suggest we enter a naked (or cash secured) PUT on GOOG that looks something like this:
Sell 1 OCT 455 PUT for anywhere between $6.70-$7.10. This means you wil collect $670-$710 for selling one 1 contract because each contract is based on 100 share lot.
So what happens:
If GOOG falls down to $455 or lower you will be put the stock at $455. The probability of this is pretty low but if you were to own the stock anyways when GOOG reaches $456 then you are not at loss in this situation. If GOOG stays above $455 than you collected $670-$710 and can repeat the strategy again till GOOG reaches your target entry.
Please keep in mind this strategy only works if you are willing to own 100 shares of GOOG or $45,500 worth of Stock.
Full Disclaimer: Options can be risky if you don't know what you are doing so please do your research first. This is only a recommendation for learning purposes and not to be used as trading advice.

Good advice - "GOOG Option Strategy based on report target entry"
posted Sep 13 '11 by beastofbodmin
This is a way to simultaneously generate cash from a stock before you own it, and at the same time, to reduce the cost basis of the stock - i.e. acquire it at a discount.
Suppose you sold GOOG OCT11 455 P for $7.00 and the the option was exercised, then you would have paid only
455 - 7 = $448 per share. That is a 1.5% discount.
If GOOG gets close to or drops below 455 before expiry, you could elect to buy back the options and sell puts at a lower strike, and so on.

Variation on "GOOG Option Strategy based on report target entry"
posted Sep 13 '11 by beastofbodmin
When you have more than one item on your watchlist this system effectively ties up a lot of cash that might be put to use elsewhere.
Another approach would be to wait until GOOG, or another stock on your list, trades close to its MOS price and only then sell puts. The premium from the sale of the puts will be higher, so the discount will be deeper. Your reserve cash pool can be smaller, because it is only brought into play when one of the stocks on your watchlist is near its MOS price.
So instead you can choose to sell puts on all the stocks in your watchlist provided there is a good distance between the stock price and the MOS price. This is based on the assumption that stocks will not approach their MOS at the same time.
When you sell puts you typically need to keep an amount of cash on margin. CBOE rules are for 20% of the underlying security to be set aside.
So if you had a pool of, say, $100,000 you could use it like this:
Assume GOOG is on your watchlist and has the highest MOS price. Now
$100,000 = approximately 200 GOOG shares at yesterdays' close of $530.
Sell 1 GOOG OCT 11 P. Required margin = 20 * 530 = 10600
Because you intend to buy any of these stocks, you need to leave aside 80% of the most expensive. In this case GOOG.
80 * 530 = 42400
Now you have 10000 - 10600 - 42400 = 68200 cash "spare".
You can use this cash to sell more puts at 20% margin on as many stocks as you have on your watchlist and the number of positions you feel comfortable maintaining. A rule I recently started to use is to not commit more than 15% of my account value to any one options trade. This is based on not expecting to buy, at the same time, all of the stocks in which I have I have options positions.
When applied to an account of size 68200, it means I can only sell 1 option with strike 102.00
.15 * 68200 / 100 = 102.30
or multiple options whose strikes add up to 102.30.

RE: Variation on "GOOG Option Strategy based on report target entry"
posted Sep 13 '11 by newmansk
Great job on further analyzing the options strategy to our community members.
The margin requirement expalanation is great for understanding how you can leverage yourself but I disagree with using it as a Rule 1 option strategy (as I like to call it). Reason being is if you were to own the stock most investors would have the cash for it and wouldn't play wiith margin like a lot of traders do. Reason being you never want to sell a "rule 1" stock unless the technicals say so where a trader wants to get in and out in a short time frame therefore lesss interest cost on your margin. It is also riskier to own your long term stocks with margin.
My suggestion was assuming that the investor was doing a cash secured Put and had 100% of the cash in the account because that is how they would enter the trade if they bought stock.
But I really do find your explanation very interesting for myself but would not reccomend a novice option trader with Rule 1 intentions to take on margin.
Thank you for your insight and comments.

I take your point.
posted Sep 13 '11 by beastofbodmin
Hi newmansk,
I take your point. As well as the novice consideration, it is also very important to note that you would need to check your portfolio every day, and also set up some alert warnings.
Definitely not such low maintenance as a pure Rule #1 strategy.

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