If you strongly believe that Intuit is
undervalued, here are some low-risk ways to make some money.
Sell the June $30 Put (approx
Each contract (100 shares) sold results in $375 being
deposited in your account on the next business day. Let's
use some round numbers.
You sell 10 contracts
(obligating you to buy 1,000 shares at $30 if the market goes
a) You receive $3,750 for the
b) IF the options are exercised, you need to have
$30,000 to buy the 1,000 shares. But, you received
$3,750. Therefore, your net cost for the 1,000 shares is
$26,250 (plus commissions). So, you've actually paid
$26.50 per share -- which, I submit, is smarter than
buying shares at $30.
c) IF the market heads up, you
have no Intuit shares, but you get to keep the $3,750
if Intuit stays above $30 through the 3rd Friday in
Or, sell the June $25 Puts for $1.625 to reduce: a)
your premium (boo!), b) your chances of having the
shares put to you, and c) your cost of acquiring Intuit
if the shares are put to you.
If you haven't
obtained authorization to sell naked PUTs, this may
inspire you to get started. Your liablity is limited. If
the stock price plunges precipitously, you can
usually buy the PUTs back (at a higher price than you
paid for them) to avoid having to overpay for the
It's a profitable strategy that
has very little risk. Just don't confuse selling
naked PUTs with selling naked CALLs. The latter is
something that you probably don't want to
If you strongly believe that Intuit's price will
plunge, BUY the May or June $30 PUTs instead. They are a
low-cost way to take a short position.
If you don't have a strong belief, join me on the
sidelines. Quite a show, eh?
mustbetrue40/gatesismyname/ntopperboy/outoftechs/notintuit generally tends to post variations of the same
message over and over again. It doesn't have to be a true
and accurate reflection of market conditions for this
to occur. About all you can be sure of is that it
will be negative (and probably a distortion of the way
things really are).
Slower growth...gee, is this
really news? Yawn.
Slower desktop growth ... expanding E-Finance
growth. Old news.
Nobody's trying to drive the
However, I would agree that INTU,
below $40, is quite cheap for the long-term investor
... or the short-term investor for that
Your memo has me stunned. My next sentence
literally means what it says and has no editorial content
attached to it. I have no clue about what you're TRYING to
say -- or, equally possible, I have no clue about the
meaning of what you SUCCESSFULLY said.
Or, to put
it briefly: ????
Thanks for the explanation of "puts." I have been
and continue to be uncertain about the end game when
dealing with options. If one fails to do anything before
his/her put expires I assume his/her right to "put" the
shares to the seller of the put expires as well. Let's
say I hold 10 put contracts (1000 shares) at
$30July2000 and that stock is selling at market for $20 on
the third Friday of July. I cover my put (short) by
selling it for around $10 a share, the difference between
that day's market price and the $30 put price, less
At some point, before close of
business that Friday, isn't it necessary for a purchaser
of my put to actually "put" the 1000 shares to the
original seller of the put or would that purchaser, in
effect, sell the put back to the original seller with no
stock changing hands?
If a holder of that put, which
is "in the money" that third Friday, for whatever
reason, is unable to cover, is the value of the put lost
to that holder without recourse? What if time
expired that Friday because a broker failed to execute a
timely order to cover (sell the put or "put" the shares?
Sorry this post is so long. Any additional input you
can provide is much appreciated.
August's response pretty much covers what I'd
have told you -- and with less verbiage.
major trick with understanding options is to be clear
on whether you are its seller or buyer. Let's just
stay with PUTs for the purposes of this memo.
A PUT carries with it the RIGHT (but not the
obligation) to purchase the stock from the seller at the
strike price. The buyer has no obligation at all. The
seller, however, is obligated to buy the shares at the
strike price if the buyer "exercises his right" and
"puts the option to him." (The seller accepted a
premium. So, it makes sense that he has taken on an
As a buyer of a PUT, your goal is usually NOT to
exercise the option but to trade the option itself. In
other words, you would buy the PUT on the hope that the
stock price would fall beneath the strike price --
preferably far beneath it. Then, the option would have
increased value and you could sell the option for a profit
-- if you don't hold onto it for too long. The idea
is to sell the PUT as soon as the stock reaches a
target price that you had in mind before buying the
A conservative use of PUT buying is to insure
yourself against a price drop in a stock that you own.
Let's say that you bought INTU for $35. You might, if
nervous but not nervous enough to sell the stock,
consider buying the $30 June or July option to hedge your
long position. If the price were to fall to $20, you
could recover a portion of your loss by turning around
and selling the option which would have increased in
The price of an option depends on: a) its intrinsic
value (the spread between the strike price and the
stock price), b) its time value (options are
deteriorating assets that lose their time value at an
accelerating pace as the strike date becomes closer), and c)
the volatility of a stock (the wild card). A stock
with low volatility will tend to see its intrinsic
value move dollar for dollar with the stock's price
(less the reduction in the time value of the option). A
stock with high volatility, however, will appreciate or
depreciate at a slower pace since the price fluctuations
Selling a PUT is very low risk if
you only sell them on stocks that you like at a
strike price that is attractive to you as a point to buy
the stock. The worst case scenario is that you buy a
stock for the price that you otherwise would have been
glad to buy it anyway -- but for a discount since you
received a premium for selling the PUT option -- and the
stock keeps on sinking. No matter how you cut it,
you've bought the stock at a discount to the price that
you were willing to buy it for.
The best case
is that the option sold expires worthless. You keep
the premium and have no more obligation. And, if you
wish, you can sell the PUT option all over again for a
new expiration date. (Or, alternatively, the stock
was put to you at $30 and the stock subsequently goes
up in price to N's $90 target. Now, you have both
the profit from the stock and the profit from the
premium somebody paid you for taking the stock off his
hands. How sweet!)
Myth will probably do a better job of explaining
this than I but, in short, if exercised you are
obligated to take back 1000 shares of INTU at a cost of
$30,000 (using your example). Be mindful that this can
happen at any time...not just on the expiration date.
That's why Myth emphasized that you choose a strike
price at which you would not be uncomfortable taking
those shares. That is also why your broker will require
you to maintain much equity in your account before
allowing you to undertake this strategy. If you trade
options, you must watch your stock like a hawk so that you
can take defensive action before things get out of
control. Remember, options involve leverage and wide
fluctuations in premium can occur in a blink of an eye.
If you wait for the day before expiration, the
damage may already be done.
p/e, p/s, hell, all the ratios look GREAT but the
price keeps falling and falling. so what's a guy to do?
how am i gonna feed&clothe my family now? sheesh...at
this rate i will have negative funds in my account by
the end of the month.