Originally Posted by
verminaard
I just started messing around in the stock market. Not down with all the terminology yet, so bear with me.
I am thinking of doing a 2 month put on SPY @273. Is that enough time for the financial news to likely cause the market to downswing again.
Please don't do this.
Market is forward looking, always think about the market looking 9-12 months ahead, so it's priced for where we think we will be at then (it's not a perfect way to look at it but helps beginners)
Let's look at what you are talking about doing and I will give you an alternative.
So let's use July 273 Puts, right now they are selling for about $22.
So that means you are paying $2200 for an option (excluding fees), to have the right to buy SPY shares at 273. So effectively you need SPY to be below $251 or you lose all $2200 (now you can sell the contract for a loss and a bunch of other stuff but let's just use the extreme in this case).
So you are betting on a market turning down 7-8% before July.
Here's an alternative
Sell a $251 July Put for $12.65. You now instantly collect $1265, and if before July, SPY goes to below $251 you own 100 shares of SPY at 251. But you also collected $12.65 a share so your actual price is $238.35. The risk here is you could lose more money but in theory you have bought SPY for a discount and in the long run it should recover and you can sell your shares when it recovers.