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Author: krystoff One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 252680  
Subject: Tips wanted for put option short selling? Date: 2/26/2013 12:24 AM
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Hello folks. I come here for discussion because this is the best investment forum by far, in my experience. I have had some success with short-selling using mechanical screeners. I would like to try Put Options, for which I have no experience, but is usually recommended by articles for safer short-selling.

A. The problems...

1. None of those articles say "how" to use Put Options. In the money? Out of money? How much time to buy? Does it make much difference?
2. Is there a big jump in value between slightly out-of-the-money and slightly in-the-money? Is it worth it? (One source says at-the-money is most popular with beginners, but says nothing about whether or not this is actually the best.)
3. Should I "price shop" for options? Perhaps, sometimes shorter term options or out-of-money are a better value, and other times longer term options. Is it worth paying more for in-the-money or at-the money? What is the most efficient way to determine relative value?
4. So far, I have seen at least 24 videos from brokers and youtube. They explain straddles, iron condor, etc., etc. Nobody ever assumes that somebody might just want to short-sell stocks that I believe are going down! When they do mention this, there are always zero tips about how to sort out which puts options from the dozens of options are best to buy.
5. It also is beginning to seem to me an oversimplification to describe Put Options as a method of short-selling. It seems to add the dimension of a sort of a poker game where the Put writer is attempting to price the Put so high that I cannot make a profit from Short Selling...?


B. The advice... So far I have found only three tidbits of practical advice...

1. One blog says beginners should buy about one month more time they they think is needed.
2. Short Selling by Michael Shulman, 2009, says Black-Sholes is the most basic figure for value-comparisons. (Does not say exactly how to apply it. Strangely also, I watched an entire Option seminar series from Interactive Brokers, with no mention of Black-Sholes.)
3. The same book says liquidity should be 7,500 contracts outstanding, and at least 1,500 with the chosen expiration date. I will go by this.


C. My tentative strategy... Having almost nothing to go by, I am planning to learn the ropes by trial-and-error...

1. Each week, I will pick one stock and attempt to buy several varieties of Put: ITM, ATM, OTM, and with expirations ranging from 6 weeks to longer.
2. Usually my short positions are held for a couple of weeks. I will assume a similar holding period for Put Options.
3. I will keep notes and hope gradually to find out which sort of Put does better. (If indeed Puts will work at all.)


D. Tips wanted...

1. Any corrections, warnings or suggestions?
2. Any sources, books or tutorials--that actually tell me how to short-sell with Put Options--instead of spending hours and hours explaining obscure complex strategies?
3. I do not need advice telling me that short-selling is fundamentally disadvantaged and not really a good way to invest. I know that already and I agree. I am just doing this with a small percentage of a hedge account.

Thank you anyone!
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