“Can you offer any profound advice about buying puts, as a small percentage of my portfolio, on a company which gets a bump in price on ridiculous takeover rumors? I’m thinking of 3Com, which will not, under just about any circumstances, be taken over by either Cisco or Intel. It seems if I bought a few puts I could make a little bit of income. These options trades are very complex and confusing (a good reason, actually, to stay away). Incidentally, my recent interest in options is all your fault! This is what my successful shorts of the Internet sector (Amazon finally gave in) has done to my already considerable ego. And you started me on it with your Amazon article – despite your frequent admonitions to stay away from options.” – Jeffrey Scwarz
A.T.: Knowing nothing whatever about 3Com, here’s my profound advice: Be careful. But puts are obviously much safer than shorts, and with a SMALL amount of money, you will only lose a SMALL amount of money. (Shorting 100 shares of the wrong stock at the wrong time could, by contrast, cost you a fortune.) Over the long run with puts and calls, you are likely to have lots of small losses, some big gains, lots of commissions, taxes, and tax-time paperwork. You will, in short, over the long run, lose a bit of money. But any entertainment has its cost – Super Bowl seats don’t come cheap, and neither does a lifetime of betting on Super Bowls.