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In a message dated 98-01-30 07:53:29 EST, gw.gautier@xxxxxxxxxx writes:
<< In summary, never trade another product (or another "related" market for
that
matter) in order to get out of a wrong position. >>
Hi Gwenn,
This is a rather broad statement which I can not agree with
entirely. There are stratagies using two products designed to limit risk. To
name one: a protected short sale.
With this stratagy someone who is short a stock would purchase a
call on the stock at the same time. The theoretical risk of shorting a stock
is unlimited, but by owning a call at the same time the risk is limited to a
fixed amount (Harley take note). The formula for calculating risk is Risk =
Strike price of call + Call price - Stock price. Thus if the call purchased
was at the money the maximum risk would be the purchase price of the option (+
commissions).
Naturally the profits on the short sale, should the stock go
down would be reduced by the amount of the call, but this small trade off is
well worth the certanty of never having a margin call.
I do not trade futures but similar stratages might well work in
any market.
Good luck and good trading,
Ray Raffurty
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