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I agree with Jerry that you still have to manage the trade and know where
you want to exit your positions.
The usefulness of using options with futures contracts is that you are
buying a little breathing room so your stop need not be as tight and the
fact that you can often profit from the trade even though you are wrong at
the outset. You must still sell the futures contract or the Option(s) if the
move is against them, but your option(s) are making money while the future
is losing it or vise versa. So you can wait for important support or
resistance to be taken out before dumping either side.
As the DR pointed out you can simply trade the options to begin with and not
trade the futures at all, there are pros and cons for using options only.
The options have a nasty habit of expiring just before a good move develops
and before the end of the contract so beware of congestion especially before
expiration. Option values crash rapidly near expiration and I'd say that
they rarely make an objective as they near expiration.
You still need technical and/or fundamental analysis to determine to the
best of your ability what the trend is and when the timing is good for
making the trade etc. One thing I liked about MetaStock when I tried it was
that they had an indicator called something like the Permission Index that
gave you a good idea when to and when not to enter a trade. I use other
means to determine the same sort of thing.
Well I learned a lot, hope this helps someone besides me.
Brent
-----Original Message-----
From: Jdonato98@xxxxxxx <Jdonato98@xxxxxxx>
To: realtraders@xxxxxxxxxxxx <realtraders@xxxxxxxxxxxx>
Cc: tinyeung@xxxxxxxx <tinyeung@xxxxxxxx>
Date: Tuesday, June 22, 1999 8:12 AM
Subject: Re: OPTN: Market on Close
>Mervin,
>I don't think you really want to replace stops with options. You are still
in
>a bad trade without a stop on your original position.
>You may want to protect yourself from a big loss with an option, or take an
>opposite position using options, but you should never enter the market
>without an exit strategy.
>You can limit your loss within a comfort zone suitable for your style of
>trading with stops, but not with options.
>It is very easy to get whip-sawed in high volume markets, and have a losing
>position on both sides of your trade.
>All the best,Jerry
>
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