Conversely, a put option enables the trader to profit on
a similar decline in the stock's trading price.
Not exact matches
The silver price could experience a knee - jerk
decline if the
stock market crashes
similar to its fall
in October 2008 (and if silver does
decline, it'll be temporary just like it was
in 2008).
Among widely followed indicators, we can see some of this
in the
declining number of individual
stocks achieving new 52 - week highs when the major market indices push higher, by the tendency for trading volume to become dull on advances and expand on
declines (or what is a
similar observation, the tendency for the market to make little progress on heavy up - volume and substantial downside progress on light down - volume), and
in the recent explosion of insider selling.
Notice the price
declines of RCA, AOL - Time Warner and numerous highly thought of Nifty - Fifty
stocks.2 What makes today's investors
in Amazon (AMZN), Netflix (NFLX) and Tesla (TSLA) think that they won't get a
similar comeuppance?
If we look at a more routine
stock decline event that occurred
in 2011, we see a very
similar picture:
The
decline of
stocks in the financials sector during the financial crisis once again demonstrated how
stocks in the same sector often exhibit
similar performance during a particular phase of the business cycle.
Rather, the risk
in a covered call is
similar to the risk of owning
stock: the
stock price
declining.
Many were down 90 % from their highs —
similar to
declines seen
in stocks during the Great Depression.