I was looking at some Emerging Markets ETFs this weekend and looking at how best to protect a longer-term investment in such an ETF. I have only mentioned married puts recently on this site but the strategy is simply buy an equity and purchase a put on the same equity. Purchasing a put gives you the right to put your shares of an equity to someone else at the strike price on the expiration month you choose. Of course for this right you must pay a premium. EEM and iShares ETF is trading at 41.95 as Friday. A September $42 PUT costs $3.05 (the mid point of bid/ask) So if I am very bullish on the emerging market and believe the ETF will rise over the next seven months to greater than $45 I will have an extremely safe trade, only risking $3.05 a share. Now, I like this strategy over a Stop strategy since you don't risk being "stopped out" as I did on INTC last Friday but having the same 8% protection. Also, you can sell covered calls throughout the time period and if you do get called out you still have value in the PUT options, which could increase if the Equity/ETF starts to tank.
Well these are just ideas and I would recommend researching married puts or any other options strategy before using them in your trading...
Happy Trading.....
Mark, I'm confused. I thought you would buy a call if you're bullish on a stock, not a put. Even if you were bearish, buying a put out that far (September) seems risky.
ReplyDeleteI agree that emerging market ETFs are the way to go right now, however. I still have shares of EWY and EWZ and they're doing great!
- Bill