Explore Your Options by Tom Gentile
FIXING A LOSING STOCK POSITION
Can I fix a losing stock position with options?
Every time the market hands us a few IPOs gone bad, I get asked this question. I answer, “Yes, you can,” and then the real question comes: “Can I fix the losing stock position without adding any extra risk or cost to the position?” Now that’s a challenge! Challenge accepted, because by using options, you can accomplish all of the questions asked with a simple option strategy that if properly placed, will not cost or add additional risk to the trade. You can also lower your breakeven on the trade, and even turn a profit before the stock makes it back to its original purchase price. Do I have your attention now? Let’s take a look at one stock gone wrong this year, Twitter (TWTR).
TWTR traded its first day between $44 and $50. Since then, it has moved up above $70 a share in December before dropping below $50 recently (Figure 1).