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ALTAF JUMMA wrote:
>
> Hi Rtrs,
> I have the same question. I do not use stops except very selectively mostly
> in lumber, S&P and Coffee because a stop is another parameter which can
> degrade the system. I have considered options as a hedge but again worry
> that option premium will eat up my profit. My mental stop is $ 500. The
> option may be worthwhile if costing less than $500. However I have not yet
> come up with a solution. A broker at Spike Trading uses Options as an hedge.
> He uses Time and Price to forecast turning points, tries to get in at a
> point where his risk is minimun if trade fails. In case of losing trade, his
> option kicks in to cover his losing trades and he exits his future trade, so
> when he loses, he doesn't lose much. I don't know how good this strategy is.
> It works better in futures which tend to reverse sharply and suddenly. Any
> comments on the above or anybody doing something similar.
> Happy Trading Ashif
> At 04:32 PM 1/29/98 +0000, you wrote:
> >I would really like to here how you can apply a protective stop thru
> >options. I had never really considered this.. Just assumed the
> >premiums would eat any profits. How do you justify the cost???
> >
> >Richard wrote:
> >>
> >> I long ago stopped putting stop orders in. Now I protect myself from
> >> disaster losses using various options strategies. Not as easy, but no
> >> getting stopped out at inopportune times.
> >>
> >> > Us traders that are not in the pit cannot compete with pit
> traders on
> >> >their level because the lag with even real time data is enough that you
> >> >would lose most every time. This does not mean that you can't win but you
> >> >have to learn to exploit your advantages as they do. So I submit that you
> >> >need to ask if I were in there shoes what would I do.
> >> >
> >> >Best Regards,
> >> >Brent
> >
Options as a stop are a great way for brokers to generate commissions:
Long a future + long a put = long a call.
Long a future + short a call = short a put.
Why combine two items at twice commissions for the price of one item?
Also, suppose you need to stop/exit your future, you get your put or short your
call. Now you're stuck with two positions where you wanted none. They are eating
up margin and will make the overall picture confusing. Really, if you need to
protect equity, then either buy a call right away or stop your future, but doing
both is a waste of money time and energy.
Now, it is a different story if you use options to make additional money, treating
them as a separate system, but using them so as to offset your other positions in
terms of risk... But even here, you'd stop futures with futures and options with
themselves.
In summary, never trade another product (or another "related" market for that
matter) in order to get out of a wrong position.
Gwenn
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