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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.
Well as for me personally, I don't enter an option position when I enter a
futures trade. I use it as insurance for when the trade goes in the
opposite direction and I wish to stay in it. Yes, I could get out of the
trade itself, but I'd rather purchase insurance that limits my losses. I'd
say I end up purchasing this insurance about 25% of the time. In many cases
(not all) my original position ended up being correct, but I'm wrong enough
to make the insurance worthwhile (not in financial terms, but in mental
terms)
>
>Why combine two items at twice commissions for the price of one item?
Why not? I suppose if you're trading for a few hundred dollars profit per
contract commissions would eat you alive. but I trade the longer swings and
for positions. (I admit, I don't know exactly where swing trading ends and
position trading begins.)
>
>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.
Being long a put REDUCES my margin. (Don't know what broker you're using)
My money is being used effectively in a way which suits my trading
personality and my energy level is just fine.
>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.
If it works for you great. But it may not be what works for another person.
>
>In summary, never trade another product (or another "related" market for that
>matter) in order to get out of a wrong position.
In summary, "never" is a pretty strong word to be using. Use it for
yourself if you wish, but I'd try and stay flexible just the same.
>
>Gwenn
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