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Martin,
I've found that selling stocks short frequently presents two problems that
can be overcome by using options. First, it's difficult to borrow a "large"
number of stocks, to sell short. Borrowing is a weird concept and practice
in it's own right, but that's another matter. Second, you can only sell
short on an up tick, and up ticks don't always occur when a stock is falling
in price.
I prefer to buy deep-in-the-money puts, particularly if your order is moc,
instead of selling a stock so as to circumvent these problems. IMHO, it's
advisable to buy deep puts where the delta is approaching 1.00 as the change
in price of the put will almost mirror the change in price of its underlying
stock. In my example, if there were options traded on RGFC, then I'd have
bought deep calls, for the same rationale.
I don't know of any books that specifically address in some detail the
opportunities of intra-security trading. It would be great if you could code
same basic, all be they sophisticated, rules into a scanning utility to
uncover such opportunities. Doing it manually is a lot of work. Also, TS
isn't the most suitable application to trade what are effectively spreads.
Colin
-----Original Message-----
From: Koettner [mailto:a.koettner@xxxxxxxxx]
Sent: Saturday, December 22, 2001 3:38 AM
To: cwest@xxxxxxxxxxxx
Subject: Re: intra-security trading system
Hi Colin,
I am also interested in this kind of trading.
Have worked out some "Pairs-Trading" strategies, but without the use of
options. I'm not sure if I misunderstand your strategy, but can you explain,
why you use options for this strategy, and not simply sell short e.g. DORL
shares? Can you recommend some books, articles,... on this topic?
Many Thanks!
Martin
----- Original Message -----
From: <cwest@xxxxxxxxxxxx>
To: "Omegalist" <omega-list@xxxxxxxxxx>
Sent: Friday, December 21, 2001 11:54 PM
Subject: intra-security trading system
> Looking for comments from anyone that's done anything similar to the
> following.
>
> Consider 2 companies (stocks) in the same line of business and in this
> example operating in the same geographic region. Their symbols are DORL
and
> RGFC. Only DORL has options.
>
> DORL's historical (14 day) StdDev is .26
> RGFC's historical (14 day) StdDev is .37
> Relative beta is (RelBeta) 0.70. (i.e., .26/.37)
>
> When Close of DORL*1000*RelBeta > RGFC*1000*some 1.x then
> buy DORL deep puts and buy RGFC shares.
>
> Now change the concept to intraday. It seems to work.
>
> How could one scan for similar opportunities?
>
> Colin West
>
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