If you look at my “Triple Play Hedge” with Skechers (SKZ) in my Active Positions, you will see my first leg has expires, my second leg is covered and the third leg is Naked with a Strike Price of $28. Today with the entire market having a big day, SKZ was also having a big day. With SKZ up and within 50¢ of my $28 Strike Price (third leg), I had to leave my office which would have me away from my computer. Before I left my computer I entered a “Stop Buy” order to buy 1000 shares of SKZ if the stock went as high as $27.95. This “Stop Buy” order would only be executed if the stock went up to $27.95 and would not be executed if the stock never went up to my buy price. The difference between a “Limit” buy order and a “Stop Buy” order is, if the stock is at $27.50 and I entered a “Limit” order to buy the stock at $27.95 I would be executed immediately because you get executed at you buy price or a better price. With a “Stop Buy” order you only get executed if the stock gets up to your desired buy price. The “Stop Buy” order will stop the stock from getting any higher before it gets executed. I enter this type of order because I didn’t want to buy the stock unless it approached my Strike Price. If the stock didn’t get close to my Strike Price I would rather stay Naked. You must learn these “buy” or “sell” rules in the case you are not near your computer. Now that I’m back near my computer I noticed that I was executed on my “Stop Buy” order to buy another 1000 shares of SKZ at $27.95 before it went above my $28 Strike Price. My “Stop Buy” order did it’s job! The “Stop Buy” order is a great tool to have. Here’s the buy order:
Buy 1000 Shares SKZ @ $27.95
At this point all Calls of my SKZ “Triple Play Hedge” are covered. If the stock goes down I might choose to sell my shares and go Naked on these Calls at any time. Let’s see what tomorrow brings.
Any questions, please send me an email.
Steve
The Options Coach