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At 9:22 PM -0400 7/20/98, Earl Adamy wrote:
>Can you expand a bit on how you insure overnight risk with options? My
>first reaction was that buying/selling options for overnight would be
>expensive insurance, but then I don't really know so figured I'd ask and
>learn something?
The risk is probably obvious. You are long one S&P contract, war breaks out
in east oshkosh overnight, and the market drops 25% on the open. Your stops
get hit and turned into a market order that don't get filled until the
bottom. Then your broker calls and asks for $50,000 to $70,000 immediately.
Bummer.
If you buy put options on the S&P futures in the same account, the put
value partially protects you. The insurance costs are not bad if you limit
losses at perhaps a 10% to 15% drop. By it and leave it in place while you
trade for weeks. Expect it to expire worthless. It is only insurance like
fire insurance.
See the CBOE web site on using options to hedge accounts.
Bob Fulks
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