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I think Ben's note re buying puts and selling calls provided a pretty
good roadmap. You might want to look at the average trade of $2200 which
is around .3 ATR on the full spoo ... while not bad for day trading
seems a bit low for position trading. Without knowing more, I'd suspect
the trading time frame is too short for position trading.
Earl
----- Original Message -----
From: "Gary Fritz" <fritz@xxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Thursday, January 27, 2000 9:19 PM
Subject: [RT] Re: Overnight disaster insurance?
> Earl wrote:
> > The only disaster insurance for a long position is a put and the
> > only disaster insurance for a short position is a call.
>
> I understand, but the question is the cost. Does it cost so much
> that you're better off to just go flat?
>
> If I understand things correctly, 2 options offset 1 futures
> contract, right? So let's say I feel I can absorb 100 S&P points on
> a long position before needing the insurance to kick in. S&P is
> currently at about 1450, so I'd want insurance at 1350. Feb 1350
> puts are currently at about 12 1/4, so it would cost me about $2500
> per contract to buy disaster insurance that would last 3 weeks. Mar
> 1350 puts are twice that price, so that's $5000 for 7 weeks of
> protection. Pricey. Even if you liquidate the option after a short
> 2-5 day trade, if the market moves as you hope it does, then the
> option is worth maybe 10% of its purchase price when you exit your
> trade. $2500 or $5000 would take a damn big bite out of my trades,
> considering they only average about $2200.
>
> It would cost about $1000 per contract to buy a put 230 points OTM
> and it still leaves me open to a $57k/contract hit. That is damn
> expensive insurance with very little protection.
>
> Or am I misunderstanding how this works?
>
> I need to look into Ben's approach more closely. Maybe he's found a
> way to do this without blowing all your profits on insurance. But I
> don't see how you could sell far-out (100pt OTM) calls for as much as
> the close-in (25pt OTM) puts cost you....
>
> Gary
>
>
>
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