No, I don’t want AIG (AIG) to die. I was merely writing in German – I actually said “The AIG The.”
Just as AIG crossed the $41 mark this morning (about 10:40 a.m.) I increased my bearish bet on the stock by adding another put spread.
Yesterday’s trade entailed going long the October $45 puts and shorting the October $43 puts. My trade today was even more aggressive, as I went long the September $41 puts and shorted the September $37’s.
My rationale for going long spreads rather than just making a straight purchase of put options is simple. The implied volatility readings on these things are huge. As of the time I’m writing this, the September $41 puts are going for about $12.50. That’s a heck of a lot of cash to lay out, and to make money, the stock would have to make a big move pronto to offset the time decay of the options.
By shorting a lower-priced strike against my long put position, I reduced my capital outlay. Granted, this caps my profitability, but that’s cool with me. I still think AIG’s stock is set to collapse but discipline trumps conviction – ESPECIALLY with options. I’m just not a Lenny-Dykstra type.
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