27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.
Two Ways Of Hedging Stratasys
Shares of Stratasys (NASDAQ: SSYS), the maker of 3-D printers, closed up fractionally on Thursday, after hitting a 52-week high intraday. The company will be announcing its third quarter earnings on November 7th. For investors looking to add downside protection, here are two ways to hedge.
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1) Hedging With Optimal Puts
11.2% cost. Uncapped upside.
These were the optimal puts*, as of Thursday's close, to hedge 1000 shares of SSYS against a greater-than-20% drop between now and June 20th.
As you can see at the bottom of the screen capture below, the cost of this protection, as a percentage of position value, was fairly steep at 11.21%.
2) Hedging With An Optimal Collar
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Pays you to hedge. 20% upside cap.
If you were willing to cap your potential upside at 20% between now and June 20th, this was the optimal collar** to hedge 1000 shares of SSYS against a greater-than-20% drop over the same time frame.
As you can see at the bottom of the screen capture above, the net cost of this collar, as a percentage of position value, negative, meaning an investor would get paid to hedge in this case.
Note that, to be conservative, Portfolio Armor calculated the cost of this hedge by using the bid price of the call leg and the ask price of the put leg. In practice, you can often sell calls for more (at some price between the bid and ask) and buy puts for less (again, at some price between the bid and ask), so, in actuality, an investor opening the optimal collar above may have gotten paid more than $800 to hedge in this case.
Possibly More Protection Than Promised
In some cases, hedges such as the ones above can provide more protection than promised. For a recent example of that, see this post about hedging shares of BlackBerry (NASDAQ: BBRY).
*Optimal puts are the ones that will give you the level of protection you want at the lowest possible cost. Portfolio Armor uses an algorithm developed by a finance PhD to sort through and analyze all of the available puts for your stocks and ETFs, scanning for the optimal ones.
**Optimal collars are the ones that will give you the level of protection you want at the lowest net cost, while not limiting your potential upside by more than you specify. The algorithm to scan for optimal collars was developed in conjunction with a post-doctoral fellow in the financial engineering department at Princeton University. The screen captures above come from the Portfolio Armor iOS app.
27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.