|
PureBytes Links
Trading Reference Links
|
as a forex and futures person i typically reduce my overnite risk by 40 to
70 % overnite as if you have a favorable position taking partial profit
gives you a lot of breathing space as your average will be very favorable ,
in addition if the market has gone nowhere overnite you can quickly go back
to bigger size. gary its all relative to the depth of product you trade
forex is a24 hour market with decent liquidity if you are specing your
capitol on an illiquid market you better have agood average .... as ahistory
lesson 5 years ago guys who shorted coffee got roasted (bad pun) when brazil
had frost damage ,coffee went up 35 percent in london prios to NYK open
-----Original Message-----
From: listmanager@xxxxxxxxxxxxxxx [mailto:listmanager@xxxxxxxxxxxxxxx]On
Behalf Of Gary Fritz
Sent: Thursday, January 27, 2000 9:47 PM
To: realtraders@xxxxxxxxxxxxxxx
Subject: [RT] Overnight disaster insurance?
I have a really basic position-management question...
How well do overnight stops *really* work to prevent disaster?
I'm primarily interested in the SP and ND. I trade my (mechanical)
systems with fairly high leverage. I've studied the systems'
characteristics very closely, and I'm comfortable with my degree of
risk for normal situations. My aggressive leverage point is still
only about 1/5 the "optimal f" value for the systems, which is pretty
darn safe.
However, the systems holds overnight. Since I use only RTH bars, the
systems essentially ignores nighttime market action. In normal
market conditions that works just fine, and I'm happy with it.
But I'm concerned about what could happen in a meltdown scenario.
I'm not too terribly worried about a meltUP, but an overnight crash
could ruin me. The "old and wise" traders always say that young
traders get over-confident and trade too large, which works just fine
until one of those 4-sigma events happens, and then they're bankrupt.
I want to avoid that.
I've looked at option-protection strategies with no luck. Everything
I can find says that any option strategy that would protect you from
an adverse overnight move would effectively erase any overnight
profits, so you might as well go flat at the end of the day. But
doing that wrecks my system.
I'm wondering how it would work to place a disaster stop in Globex
overnight. In particular, how would stops work in the SP or the ND
in an overnight crash situation? Would all the bids disappear and I
wouldn't get filled until the bottom (if any)?
Is there any kind of stop or option strategy that can protect you
against huge losses in an overnight move, without costing so much
that it eats any overnight profits?
If I can't find a suitable insurance policy, I'll just have to lower
my leverage. But even then I'm not quite sure how much I should
allow for to cover a disaster. If China lobbed a nuke on Taiwan, or
something like that, how much might the markets drop overnight? 100
S&P points? 300? 500??? If the S&P or ND100 dropped 25% overnight,
that would represent $80-90k per contract. That's great if you're
already short, but if you're long...
How can you lower your leverage enough to avoid getting flattened in
a big crash, without completely trashing your returns in normal
markets?
Gary
|