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There are many other option strategies that will work and you don't have to worry
about stops. Ira
cb wrote:
> Richard wrote:
> >
> > Another way is to purchase an option.
> >
> > Now I know there was discussion on this forum a while back about using that
> > strategy instead of a stop. Now I don't think for a minute that a standard
> > strategy of using stops instead of options when you initally enter a trade
> > would result in overall profit, but what about purchasing one when your
> > trade reaches its profit goal? That way you could stay in the trade and
> > control risk.
> >
> >
>
> Maybe instead, selling an option a little ways below than where your
> (short) futures is currently at? You would still need a stop in the
> futures and the problem of where to put it would remain, except that you
> could feel better about a wider stop since you collected some premium.
> Of course, you've added another question, where do you implement this
> strategy, i.e., after how much of a move. If you can sell one that is
> beyond some technical "barrier" or fundamental prediction, that would
> make sense.
>
> If the futures continued in the trade direction, you would profit until
> the strike was hit and then you would have sacrificed further profit
> (except you'd have the premium also). But if futures retraced to your
> stop or stayed level, you've gotten more profit than you would have
> without the option sale.
>
> This might make a lot of sense when volatility has expanded such that
> you are no longer comfortable risking the profits you have, with logical
> stops that are now further away. One idea would just be to liquidate.
> Another might be this idea of holding it with the far stop but selling
> an option to make up for that.
>
> As a small account holder I would want to buy back the put as soon as
> the futures was stopped out. The one time this would be a probleme is,
> if futures made a quick spike up stopping you out, and then retraced
> back below the point where you sold the put, before you had a chance to
> liquidate that as well.
>
> Conrad Bowers
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