Hi
Would like to buy put options as I expect a company to underperform in 2015.
Problem is that there are only puts maturing in March 2015 - how can I structure a trade without simply shorting stock?
Thanks much
(posted in trading forum, too - no frontin' pls if any issue)
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I don't know what the underlying is, but if there are only March '15 contracts being "traded", then I would expect it to be a rather illiquid option (and asset), so you'll probably get hosed on the spread no matter what the expiry is. That would be far more concerning to me than expiration. That concern would be somewhat mitigated if you are sure you will be exercising, I guess.
Anyways, depending on your broker (and account size) you can try and buy a custom option contract. Highly recommend you know how to price an option if you go this route, even if only vaguely. Or you can ask to buy an exotic - sounds like a barrier option might be appropriate. Again, these are more difficult to buy if you aren't moving weight, but no harm in inquiring about what the contract structure and cost would be.
Another approach would be to write long dated naked calls, but that is obviously risk intensive.
I would recommend to not rush into the trade. If you think '14 will be bad for the underlying, then you could slowly build a position - otherwise, if you think the story is truly long term, then exhibit some patience and move into the trade when it is ripe. (Hell, maybe it is the right moment now, IDK what this trade is - just saying patience is required for a long term play.)
Note that I'm a college student - this post is neither an investment recommendation nor is it investment advice, and I am therefore not responsible for any loss of capital. If you are unsure of how to enter into a trade as "simple" as this, then I suggest you proceed with caution! Good luck ;)
^^^ lol at above. Not exactly wrong, but joe schmoe here probably can't just call up his broker to create a custom structured product, and if he did he would definitely get his face ripped off. Good advice in the last paragraph though!
OP, you can always roll the maturity forward when new contracts become available. If the Mar 15's are liquid enough you could use those, or put on a nearer maturity if it's easier. As expiry approaches you sell the expiring contract and buy a longer dated one. Time decay and transaction costs will add up but if you can't short that's the next best thing. If you can short but are just worried about volatility in the near term a synthetic put (short stock long call) might be a better idea or at least one easier to get in and out of. You could also look into single-stock futures if available for the underlying.
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