|
PureBytes Links
Trading Reference Links
|
Long futures + short overvalued and out-of-the-money call OR
short futures + short overvalued and out-of-the-money put is another way to
PROTECT PROFITS and still stay in the trade.
Jeff T. Buchanan
jeff@xxxxxxxxxxxxxx
http://www.vipfutures.com/
http://www.vipfutures.com/channel.cdf
-----Original Message-----
From: Richard <richard@xxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: Friday, January 30, 1998 4:44 AM
Subject: Re: Stopping Futures with options
>>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
>
>
|