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Although I've read Macmillan's original book on options, I haven't traded
them in years and when I did I generally wrote covered calls. My experience
in using options in a case like this is nil. That said, I'll venture a few
comments. Generally the safe returns are earned by selling premium rather
than buying premium. Also, premiums are generally highest when directional
volatility is highest. In this case, where downside volatility is extremely
high, one could expect to pay dearly in premium for the put while earning
little in premium for the call. Assuming the initial move is approaching
support, one could reasonably expect the short volatility premium to
contract and the long volatility premium to remain flat or expand. Thus from
an options standpoint, I would want probably seek to sell put premium and
buy call premium. While this might well be a sound approach as an options
trade, it would only compound and complicate the problem of the current long
position - the very reason why I prefer to run simple long and short futures
trades.
Earl
----- Original Message -----
From: RAY RAFFURTY <rrraff@xxxxxxxx>
To: <realtraders@xxxxxxxxxxxx>; Howard Hopkins <hehohop@xxxxxxxxxxx>
Cc: Real Traders <realtraders@xxxxxxxxxxxxx>
Sent: Thursday, August 12, 1999 11:24 AM
Subject: RT_Re: Limit Down
> Hi Howard,
>
> As you may know, you can create a synthetic position with options. To
> create a synthetic short position, the opposite of your long position, you
> BUY a put and Sell a call. If you buy the put and sell the call at the
same
> strike price, you will have the equivalent of a short future position to
> offset your long future position. You may lock in a small loss but it
will
> be better than days of lock limit down. Call your broker, hopeful he
will
> be able to suggest to best options to hedge your longs.
>
> Other suggestions, anyone?
>
> Good luck and god trading,
>
> Ray Raffurty
>
> P.S. For your owe protection, please learn option strategies before you
> continue trading.
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