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Gary wrote:
> If China lobbed a nuke on Taiwan, or
> something like that, how much might the markets drop overnight? 100
> S&P points? 300? 500???
Go to http://www.cme.com/market/riskman/pricelmt.html for the CME equity
index price limits. The overnight limit is currently 35 for the SP and
82 for the ND. Of course, it can go much lower once the RTH session
opens (280 SP and 660 ND) and might not trade at all in the event of a
global meltdown. The rules are complicated and worth studying. With the
way they have trading halts at various levels on the way down, I think
it's unlikely that you wouldn't be able to get out at all. But, any way
you look at it, yer gonna get hosed if you're long and there is a sudden
crash. Just gotta trade small enough that you can handle it.
> How can you lower your leverage enough to avoid getting flattened in
> a big crash, without completely trashing your returns in normal
> markets?
Ah, the $64 question. :-) The max down move in a day is 20% of the index
so that means a single day could wipe out a 5:l leverage account. All
the historical crashes have had a sharp down spike followed by a partial
retrace so maybe you need to back off the leverage enough that you could
stay alive to bail on the retrace if it locks limit down.
--
Dennis
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