No. of Recommendations: 3
you dont set a limit order near your conviction price?
No...my experience has been that when things plummet, it's often to a much lower level than whatever limit you choose. I prefer to watch and wait. On rare occasion I have set a price trigger alarm, something my broker offers. The first time it triggered, I jumped out of my skin, never having heard my computer make that wail!
Another reason is that when a price plunges, sometimes it is for a rational business development reason which just became known. With an alarm you can read it and decide the value, but when it's a limit order you can't.
If I'm going to commit to buying something in future at a given price without knowing the news developments between now and then, I at least want to get paid for that, which options allow me. And the pay can be pretty good, which means that it often becomes pretty irrelevant whether my target price is ever hit or not.
On average over the years, I find that cash backed put writing has offered a rate of return for each stock around halfway between the return on the stock in the same period, and 10-12%/year, with zero leverage. Averaged over around 100,000 contracts.
Jim
