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|Subject: Re: short an index/etf||Date: 7/31/2012 3:48 AM|
|Author: WPatch||Number: 39195 of 39454|
"a perfect "sell a put" scenario"
A put is a contract where the buyer pays a premium for the opportunity to sell within the option period the security at some value based on a current fixed value relative to the current price. If you sell the put the buyer has insurance in case the market goes down he will not lose his shirt. Your broker, however, will be happy. On the two commissions, your put sale and your etf purchase, the firm made money, the broker made money. Looking on the bright side, your prediction was right, and you'll recover some of your fleece come tax time, after paying another commission to sell before yearend.
Of course the other possibility is that your crystal ball is wacky, the stock market continues to go up, Obama wins in a landslide, November down slightly on democratic victory but recovers well in December. You earn your premium and do not end up with an etf with a low price and high basis.
The regulars on this board and I agree on this about options, there is no net gain between the option buyer and seller(the buyer's gross gain is the seller's loss) and after commissions it is a negative sum game.
Long time investing is a positive sum game. The investments pay interest or dividends ovder time, so if you properly diversify and do not overtrade, you wealth will increase over the decades. Index funds aid in proper diversificaton.
ETFs, while normally based om indices, are susceptible to trading rather than investing. They can be bought on margin and shorted. Brokers enrich themselves arranging for option trades. The etf SPY
has the largest option trades.
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