Add training workflow, datasets, and runbook
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262 Part Ill: Put Option Strategies
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As was stated earlier, it is necessary to have a computer to make an accurate analysis
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of all listed options. The average customer is forced to obtain such data from a bro
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kerage firm or data service. He should be sure that the list he is using conforms to
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the above-mentioned criteria. If the data service is ranking option purchases by how
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well the puts would do if each underlying stock fell by a fixed percentage (such as 5%
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or 10%), the list should be rejected because it is not incorporating the volatility of the
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underlying stock into its analysis. Also, if the list is based on holding the put purchase
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until expiration, the list should be rejected as well, because this is not a realistic
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assumption. There are enough reliable and sophisticated data services that one
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should not have to work with inferior analyses in today's option market.
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For those readers who are more mathematically advanced and have the com
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puter capability to construct their own analyses, the details of implementing an analy
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sis similar to the one described above are presented in Chapter 28, Mathematical
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Applications. An application of put purchases, combined with fixed-income securi
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ties, is described in Chapter 26, Buying Options and Treasury Bills.
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FOLLOW-UP ACTION
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The put buyer can take advantage of strategies that are very similar to those the call
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buyer uses for follow-up action, either to lock in profits or to attempt to improve a
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losing situation. Before discussing these specific strategies, it should be stated again
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that it is rarely to the option buyer's benefit to exercise the option in order to liqui
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date. This precludes, of course, those situations in which the call buyer actually wants
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to own the stock or the put buyer actually wants to sell the stock. If, however, the
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option holder is merely looking to liquidate his position, the cost of stock commis
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sions makes exercising a prohibitive move. This is true even ifhe has to accept a price
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that is a slight discount from parity when he sells his option.
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LOCKING IN PROFITS
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The reader may recall that there were four strategies (perhaps "tactics" is a better
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word) for the call buyer with an unrealized profit. These same four tactics can be
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used with only slight variations by the put option buyer. Additionally, a fifth strategy
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can be employed when a stock has both listed puts and calls.
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After an underlying stock has moved down and the put buyer has a relatively
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substantial unrealized gain, he might consider taking one of the following actions:
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1. Sell the put and liquidate the position for a profit.
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2. Do nothing and continue to hold the put.
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