New Update on Buying Options for Protection

Time to revisit Susan and John strategies. Susan wanted to lock a $30 purchase price for GE, expecting GE to be higher, possibly much higher, by the 3rd week of February.

GE lost ground instead and is now just $3.5 higher than the strike price.


The call with $30 strike expired yesterday at the intrinsic value of $3.5:


The call with $35 strike, that was at-the-money in early January, expired worthless since it went out-of-the-money in late January:


Overall, this strategy didn't pay off for Susan. However, she only lost the premium paid for the call options and did not have to actually buy GE shares at $35 and see them lose value afterward. In practice, she had an effective stop loss trade in force.

John, instead, was buying puts to lock a gain already made with GE. This strategy worked because GE did lose value in late January.

GE-OS, the put with strike at $37.5, is still very much in-the-money.


GE-OG, with strike at $35, sky-rocketed in late January as GE stock tumbled:


Even more so for GE-OZ, with strike at $32.5:



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