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At 04:21 PM 9/24/97 -0500, you wrote:
>
>RT'ers,
>
>This fellow sent me the attached post. Thought he would be better
>served by someone specialising in the DM-USDollar spread. Walt Downs
>
My RAK for the day: Make 300% on your margin of $750? It's not unusual to
make $4000 to $6000 on two spreads. Yeah, I know, if the longest period you
likely hold is 70 days, the annual on $2250 profit per spread is 1,564%
annualized.
Walt, your fellow probably will do better if he shorts the DM. Reverse of
his spread. The down move for DM could start shortly and run into the end
of first quarter of '98, although the seasonal indicates down move starting
mid October and running out early February.
I think a better-proved spread will be available shortly as DMZ-SFZ or
DMH-SFH. (That is Buy DM, Sell SF.) This trade is based on the belief that
the SF will lose faster than the DM. Take it and ride it as soon as the SF
divided by the DM is at least 123.05%. Every thing is right for this trade
except the percentage that yesterday was 121.98. Best idea is to take at
least two contracts. When the profit you like has occurred, say(around 300%
of your $750 margin)$2,250, exit one spread and then watch the other very
carefully. The second could go to $5,000 or more. (Don't bug me about
commissions. You should make more than I have shown, anyway.)
It probably will work better for you if you place your order as an actual
spread order. Don't tell the broker the price at which each should be
bought or sold. Give him the difference and let him get any combination he
can put together. You may give him your spread of say 12.52 but you might
be able to give him leeway or discretion of four points. Some brokers will
not work with discretion in which case make your broker tell you how he can
do it. If you like it, just do it.
Stop in your mind should be at least $1000 per spread because of volatility
of the spread. An aggressive stance would go to $1,750 per spread. You
should not go into this without considering the margin plus difference to
your mental stop. If your mental stop is $750 margin plus $250 for a
possible $1,000 draw down, you might divide your potential profit by
$1,000--not $750. So your profit at $2250 is only 225% and at 70 days would
annualize to only 1173%. Paper trading this spread over several years shows
an incredible 96% profitability. Yes, I have used it and never have lost at
all and never have had to add margin. There is a way to run the SF-DM spread
but the rules are different and not part of today's RAK.
Get out of this spread regardless of profit or loss no later than beginning
of last week of month preceding expiration. On Dec. contract, get out in
November.
Good luck and consider sharing a great RAK with us.
Consider Practicing Random Kindness
(Read RAK's in Reader's Digest May 1992)
Roy C. Sampley
rsampley@xxxxxxxxx
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