Currently, the only way to try and bottom fish is to buy stock and buy puts for insurance. Last Friday we nibbled on Bank of America $BAC.
Bank of America was at $13.21. So we recommended to buy 100 shares and then buy 2 puts to hedge our position. This is more than the tradition hedge which would be 1 put for each 100 share. I am prepared to be early and 2:1 put protection ensures this fact.
We recommended the March $13 Put for 0.59. So we added $118 to our cost of 100 shares which is $1321. I am willing to give up $1.18 on the upside for protection on the downside.
We noted on Friday that we would diagram this trade as we ride it. Bank of America $BAC is now at $11.35 so on the purchase of 100 shares the recommendation has lost $185. The puts are now worth $1.70 so each put is higher by $1.11 or $111 per option. We own 2 puts so the gain is $222 against the stock loss of $185, we are up $37 or a whopping 2.57% based on the price of the stock and options.
That said we are closing out the puts and selling the stock. We will revisit Bank of America $BAC after the crap settles. Amazing that I bought this stock for under $4 in 2009. Hard to believe we are heading there but anything is possible.If you enjoy the content at iBankCoin, please follow us on Twitter