Fri Nov 16, 2007: GOOG Put Follow-up

In a recent commentary four weeks ago we discussed buying put options on GOOG.

Comparing a choice of buying the November 650 puts, or the longer term, more in-the-money December 670 puts, I chose the December 670's.

How'd that work out?

The December 670 puts went from 44.30 to today's close of 53.30, a 20% profit.

The November 650 puts went from 24.40 to today's close of 16.50, a 32% loss.

The point I'd like to make is that usually it pays to be more conservative, regardless of your strategy.

Sure, in theory, the November 650 puts had more leverage and would have performed better had GOOG gone straight down quickly after we bought them.

But our timing was off. The stock went up first, then down. By the time GOOG finally did collapse, much of the premium had decayed off those November's, and there was not enough in-the-money value. The longer-term December option gave us the time for the market to finally act the way we expected, and being deeper in-the-money, ended up providing a profit.

And a 20% gain in one month is not that bad.

Until next time, best of luck with your option investments!