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I think everybody is missing Ben's point about what he is trying to
convey with this strategy. He is buying INSURANCE. Look up the meaning
in the dictionary if you forgot. It is not about how you can make more
or the same money with less cost. If you do some back testing on his
method which I have done, the INSURANCE will keep you in a trade (I
should say should) longer because you do not have to worry about a
temporary sell off if you are long futures. If you want to go for a
bigger hit on the upside you can hold overnight because you have
INSURANCE. These days a 5 point stop maybe needed on a trade to avoid
being stopped out of what may be a winning trade. If we loose $1250 2
or 3 times in a row most of us would not be a happy camper. Yes you
will not make as much with the put insurance but you will not have a
heart attack either. How many people out there have taken 100 plus
points profit on the S & P futures. that is
$25000. Oh excuse me, less the insurance. I will pay the insurance
bill for a profit of that amount any day. My back testing was done at
what I considered major short term oversold conditions. He is only
looking, or I should say, talking about taking 20 points out.
Norman E.
nwinski wrote:
>
> Proffittak@xxxxxxx wrote:
>
> > In a message dated 4/3/99 10:02:25 PM Eastern Daylight Time,
> > nwinski@xxxxxxxxxxxxxxx writes:
> >
> > << HI
> > > As i menthened to everyone before it is simple
> > > if you are long sp@ 1300 you buy the 1295put
> > > this will give you ALWAYS a max loss of $1250
> > > and a week later when sp500 is 1.6% higher you sell the put at a small
> > > loss(it has life to 6/18/99).
> > > hope this helps
> > > Ben,
> >
> > Long a futures contract and long a put = long 1 call. Rather than
> > paying
> > double commisions,
> > why not just buy a call for $1,250, as it should be the same result with
> > lower
> > transaction costs.
> >
> > Simply,
> >
> > Norman >>
> > good morning all
> > a call that cost only 1250 will not move $250 for every sp point.
> > doing it my way is an insurance policy that only reduces risk (even
> > overnight) on
> > the long sp with the ability to sell the insurance policy when the long
> > trend has been established.
>
> NW: Yes, calls tend to cost more than their equivlent put. But, with the
> simple long call you will have to put up less capital than being long a future
> and long a put. I also think that if you subtract the erosion and devaluatoin
> of the put as the future appreciates that the net result will be about the same
> as just
> long the at the money or slightly out of the money call. When comparing these
> two positions, remember that by being long only the call, you will incurr
> premium erosion on only the call vs. premium erosion of both the put and the
> futures contract.
>
> >
> > In my trading an establish move is when spoos are 1.6% ahead of my buy
> > price.
> > so in my example. when i buy sps @1300 and bought the 1295 june put. i
> > will sell the put when spoos hit 1320.8.
> > at that point will put the stop loss on the future@xxxx
> > some days this happen as a day trade!!!!
>
> NW: So how much did you lose on the put? I bet the amount you lost on the put
> is just about equal
> to the amount you complained you didn't make on the call? There are traders on
> the floor who make it their business to keep these things in line. A one or two
> tick variation in a conversion type situation is a big profit making
> opportunity for the floor traders. Therefore, their actions will not allow the
> long put, long futures, vs. long call to get more than a few ticks out of line.
> Therefore, with everyone properly valued, the long call should act the same as
> your synthetic call (long 1 futures and long 1 put) only you will have more
> transaction costs. The big difference comes from the fact that the floor
> traders values the transation costs as reflected by the conversion values based
> on their low cost. But, you must pay off floor costs, unless of course you are
> a floor trader. So, an extra transaction for them may only cost them $1 each
> way whereas it will probably cost you $7 and up each way, not to mention their
> abiility to buy on the bid or sell on the ask vs. your probable slippage. . The
> net result is that fewer transaction costs has a bigger impact on the bottom
> line for the off floor trader than it does for the floor trader. Calls that
> are valued based on the long futures and long put will in the eyes of the off
> floor trader tend to be slightly undervalued because the floor traders only
> factor in their transaction costs .
> The bottomline is, try it, you might like it. Monitor how the two positions
> compare in a real time situation. You may be converted. <G> On the other
> hand, there maybe times when the married put (synthentic call) is relatively
> undervalued vs. the comparable call. On those occasions it makes sense to go
> long the futures with a long put. But, to go into the market with a blind bias
> is like giving the floor traders a blank check written on your account.
>
> Exercisedly,
>
> Norman
>
> >
> > best regards
> > Ben
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