With the recent volatility and downside threat in the market, people will look to take insurance against their long positions by buying puts. This has caused some increase in the value of the puts in some stocks that had been over-bought. Let's look at a daily plot of GOOG:
Google has already had its pullback and I don't see it going down in a large move. The downtrend is broken with as Google stays within a trading range. MACD is trending up with the faster line crossing the slower to the upside. RSI is indicating an over-sold position in the short-term. Volume indicates that aggresive selling has slowed.
I have a position in mind and today I entered into 1/3 of the total position I would like to acumulate, which is short 450 PUTs for JUN 2010 for the premium of $9/share. In the coming days I will look to add to it.
Given the volatility of the market and the posibility of a downturn in the broad markets, I have decided to buy some insurance for this position with buying 450 PUTS for MAR 2010 for $1.30/share. The value of these long puts will increase faster than the value of the JUN puts if the stock should go down from there.
