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THE DOCTOR wrote:
> CRASH INSURANCE...
>
> Pick an index that closely matches you portfolio ... exact is not critical ..
> close is good.
>
> Don't buy puts unless you desperately want term insurance and are willing to
> under perform if the market goes up or stays flat.
>
> Don't short futures unless you can live with disaster if the market rallies
> sharply.
>
> Sell a put back spread.
>
> Let's say the index you choose is at a level of 1000.
>
> Consider selling a put a little out of the money say a 975 put and then use the
> proceeds to purchase 2 puts further OTM that create a debit close to what the
> credit was for the 975.
>
> Viola!
>
> If the market goes up the insurance cost nothing(unless there was a debit in the
> trade)you fully participate. If the market is unchanged you get the same
> wonderful outcome.
>
> If the market goes down a little this strategy hurts as you spread is out of the
> money(in essence an insurance deductible)and the short put will hurt until the
> long pouts(2) kick in. So for small moves back spreads can hurt. Generally you
> are not worried about a small move and buying puts outright would not have
> protected you from a small move anyway.
>
> Big decline you are insured. The hardest part here is identifying how much risk
> you are willing to assume and pricing the risk of the various hedges. The
> biggest benefit of the back spread is that you don't get hurt much if you are
> dead wrong and the market rallies. Image having done anything but backspreaads
> to insure for the last few years. Unless you were a perfect market timer YOU
> ARE ALREADY DEAD.
>
> Earl Adamy wrote:
>
> > Since you will continue to hold the original portfolio, you appear to be
> > assuming that any decline in price will eventually be fully recovered. Given
> > this assumption, hedging by shorting futures contracts should offer superior
> > returns to buying puts. In buying puts you will be paying for the insurance.
> > In selling futures you would be collecting the net decrease in premium which
> > is roughly equivalent to a shade over the yield on tbills. This type of
> > hedging can be performed for several different equity indexes, bonds,
> > Nikkei, etc.
> >
> > Earl
> >
> > ----- Original Message -----
> > From: <DPritch901@xxxxxxx>
> > To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
> > Sent: Friday, May 21, 1999 10:45 PM
> > Subject: Re: OPTN - DOW Crash Insurance
> >
> > > WHAT OTHER LEAP OPTION IS AVAILABLE AND TRADLABE AT A FAIR PRICE IE
> > > PUTS DON
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