Hi this is probably to petrovale or putncall - but any advice is good.
If i want to hedge my 3,000 IOC long position over the next 3-6 months, what is best, take an ouit of the money series live say the 50 puts and then roll it into the next series at the expriy date, or just pay for one series at say Oct or JAn or however the series run - any advice or views? thanks GREEN
Hedging IOC is difficult because the options are expensive. If you sell calls to help pay for the puts you lose the reason for owning IOC. The reason for owning IOC is not for a 10 or 20% anual return. The reason is for the day of FIDs and a 100% return. We don't know when that day is but selling calls would cause you to lose your shares. you could buy 50$ puts and that would protect 60% of your investment.
A 50 put is not really hedging as you have 20 points of downside before the put is in the money. IOC options are very expensive. Let's say you want to protect your profits at 65. You could buy the 65 put and sell the 60 to offset the cost. As long as the stock stays above 60, you have no risk. Below 60, you have the 65 long put so your risk is 5 points. You can work the numbers and see what makes sense.
Another strategy might be to sell close months calls out of the money. There is so much premium in the options, that as the time value decays, so will the premium. So you could put some money in your pocket that way but the risk is you miss upside potential unless the call is rolled higher if the stock moves up.
Since IOC options are so expensive.Sell the options.Sell deep in the money puts .I would sell Jan 2012 put options.Collect the premium and do not reinvest it.It provides a cushion that cash for your portfolio,