Shorting Stocks!!

Re: a strategy through puts by: mungerian

01/29/05 09:14 am Msg: 121318 of 134810

Given that you expect a KKD bankruptcy in the next few months (I do as well), I'd think you'd be looking for more leverage and buy out of the money puts. I own Jan '06 10's and 5's and May '05 10's and 7.5's; all were out of the money when I bought them and had at potential payouts in excess of 5 to 1 in the event of KKD declaring bankruptcy and the stock going under $1. The puts with strike prices of 5 and 7.5 had potential payouts much higher than that but obviously have greater risk of expiring worthless. I prefer buying longer term puts to give the laws of financial gravity time to play out and because they allow me to add to my positions during sucker rallies. I find this strategy much less stressful than being short and if I'm right on the stock it will be far more profitable with less risk.