Posted: 5/13/2012 2:14:31 PM
Leaps and in the money, unless you want to purely gamble.
If you go any less than 6 months out in puts you have little shot because they are supporting the market and it is an election year.
So for example, say a bloated pig like AIG, I would probably go out to the 2013's or the 2014's and buy at or in the money.
If you want to gamble then consider the money burnt when you place the trade and only buy what you can afford to lose.
The problem with these high priced stocks (CMG etc) is the options are so damn expensive when you go out in time you wont make a killing even if the stock drops 100 pts.
If you can afford to short it makes more sense to short and accept the lower return. If you cannot afford to short and want to take that risk then first look at long term options (leaps) at or in the money. Then if you want to mega gamble go out of the money but STILL out in time and expect the odds are against you but you are willing to take that chance if you feel the market is going to correct.
I really think the market is out of balance to the tune of 6000 DOW points. I really think fair value is 7500 or lower if the fake support wasnt there.
Question is do you think the fake support is strong enough and are they willing to do whatever it takes to keep it afloat?