No. of Recommendations: 3
I tend to buy such put options in pairs. For example, buy one 20% below current price and [sell] an equal number at (say) 40% below, against the same security expiring at the same date. I don't really want to wager on drops of more than 40%, they are a bit of a long shot, so I can use the premium from those low-strike ones to help pay for the high-strike ones. At first this sounds insanely risky, who would write put options? But it's entirely safe so long as you close them at the same time. If/as your low-strike ones start losing money, the high strike ones will be making more money. So never close the high strike ones first.
Maybe I’m misunderstanding this, but it only makes sense to me if I add the important word I have provided above. Is that what you meant?
Regards, DTB
