Larry,

I've identified a stock I want to sell short with my retirement account. Since I am not allowed to enable margin trading in my retirement account, I can't sell short, but they allow options trading.

I remember you writing somewhere about first checking an option's current price vs what it's black-scholes pricing is before buying.

I know there is intrinsic value and time value in an option and I'm not sure how to make a decision on what expiration to choose. I expect the stock's price to come down in the next month or less. How should I take into account time value when buying puts on this stock?

The stock is SINA by the way.

Thanks.
Jacques

I just found out I can't buy Puts with my IRA either. Only writing covered calls is allowed.

Guess I'll just have to use my normal trading account for this one.

Jaques,
I had the same problem with my ROTH account in Ameritrade. I switched it to Brownco. They will allow you to buy puts.

Gary

Jacques,

You can be more conservative or you can be more aggressive. If you want to be more conservative and you expect it to fall in the next month or less, you should probably be looking at the September in-the-money puts, maybe the 35 strike price.

If you think it’s going to fall hard and quick, and you want to be really aggressive, you could consider an out-of-the-money August put. The risk is that the stock could go down and you could still lose money because it didn’t go down enough. The reward is that if it goes down significantly and does it quickly, you could hit a home run.

I wouldn’t worry too much about Black-Scholes for a short-term play like the one you’re considering.

Larry

Thanks Larry and Gary.
Never thought the restriction on buying options was a broker specific restriction.
I will shop around and definitely consider Brownco.