A lot of us including myself have taken positions that we thought were good only to see the shares keep falling. Here is what I am doing.
I am writing monthly calls slightly out the money so that if it moves to that level, I still get a gain. If the price keeps getting driven down, the call expires and I have lowered my average cost without having to spend more averaging down.
I then write another call and so on and if this keeps falling, using this strategy I will be at a zero cost basis in 12 - 18 months without spending anymore money.
If you see the stock suddenly rallying and it is going to fly through your call price and you want to rather get more profits than where your monthly call is, just buy it back and sell the stock higher.
You can really use call options to lower your basis. The only real risk now is if the stock goes to nothing, but I believe the odds of that happening are less on this than just taking my losses.
So, in my opinion, let the shorts keep pushing it down in this market, it is allowing me to sell monthly calls, not worry about them getting taken and I lower my costs for nothing, soon I will be sitting with a zero cost stock and when the market finally returns, the profit level will be tremendous.
I think buying USO this low, and selling calls against it is a MUST for anyones portoflio as well as UNG..here's why..
to hedge your position as the gas pump. Plus once your done selling calls against USO and UNG for about 2 years you will have paid off your initial cost and then be making money as it goes up & making income off selling calls against it.
Seriously think about locking in how much you pay at the gas pump with USO.
If you spend $4000 a year on gas, then buy $4000 worth of USO and ride it up. If oil continues to fall, then lsot money in hte market, yet saved money at the pump
MC4MB here is my strategy on SSO in case you were wondering as I did not mention it in my last message: Buy SSO RIGHT HERE! @ $30.90
Sell the November ($31) Call = $4.00 Buy the November ($30) Put = $3.90
4.00-3.90 - your credit is $10
Now $10 is nothing but $10/390 = 2.56%
2.56% x 12 months = 30.72% ---------------- Investors are dreaming of these types of yearly returns.
This scenario assumes SSO will stay sideways or go up (Which it probably wont)
However, if SSO GOES DOWN! You wont care about down much your losing on your shares because A.) Your Put option is making money B.) The Call option is worthless so now you can buy it back for less and make a profit.
Thus, if SSO goes down you make PUT Profit + Worthless Call option profit. This profit will be greater than the loss you will incure by having your shares go down.
You are right on the money with this strategy, I will tell you one I am also having very good results with right now is POT, look at the price, 52 week highs and lows and more importantly the option prices.
You will have paid off the initial cost of your SSO share in 12-18 months, then after that you wont even care if SSO goes to $0. which it wont. It makes me cry that people do not understand thiese strategies.
I am implementing this technique on a lot of my LONG stocks. To make your point even stronger think about buying a 2011 leap (unfortunately not possible for SSO) you will pay it off much quicker than 12-18 months.