Advice to fellow Longs . Intelligent people please comment.
StockWar, very interesting strategy.
But what happens if I sell some December25 puts now for $2.80, but come late December, LDK's stock price is below $25? Don't I have to forfit the shares I sold the puts against? Seems that's the big danger. I end up selling those shares for $2.80. Of course, as long as the stock price is at or above $25/share, I win. But God help us if LDK is at $24 when the puts come due.
Well like I said before if you sell now for $2.8 you would be actually safe all the way down to $22.20(25-2.8) which is a long way. Anything above $22.20 you make a profit. And what you would do if it did close below 25 is buy back the options to close the position not give up your shares. Of course if the price is 25 or more those options are worthless to the holder so you just walk away with the money.
And again if the price goes down more you can sell more and get a higher premium perhaps around $3-4. That's why you do it in increments with a stock that's so volatile like LDK. Then you can add little more profits.
There is no such thing is a sure trade. So there is of course risk. So only risk the money you can afford to lose.
But I think (so does the charts) LDK is much oversold and at least a short term bottom (from a trading point of view is near) for such trades.
I will not be selling my shares though. That is a long term hold. I just do trades around the edges with options.
JBM: it looks like the chance are that you cannot sell puts anyway. But if you can sell LDK puts at strike price of 25, then if the stock goes below 25 and someone bought your put exercises the option, then you are obligated to buy back LDK @ 25 regardless of the market price. But you would keep the premium. You will not lose your shares.