Is it Time to Help Protect Stock Options Gains?
With the Dow Jones Industrial now over 11,000, we have seen one of the greatest 12-month returns in stock market history. The inherent leverage in stock options can cause tremendous valuation changes based on the movement of the underlying stock.
Below is an example of that illustrates the increase in value of a 3M executive’s options with a 20% change in the price of 3M stock, from the current price of 87.44.
Obviously the change in option value is based on several factors (exercise price, expiration, volatility of underlying stock, etc.). As you can see, a 40% increase in the stock (87.44 to 125.91) creates over a 25% increase in the option values and a 40% decrease in the stock (87.44 to 55.96) creates over a 90% drop in option values.
With the Dow Jones Industrials up over 60% from March 2009 through March 2010, it may be time to protect one of the most leveraged investments, Stock Options.
Securities offered through LPL Financial Member FINRA/SIPC