|
PureBytes Links
Trading Reference Links
|
Ben wrote:
> the answer is selling march and buying Feb puts
> also when selling march i sell 24 calls and buy only 16 puts
> and it still COST 20% of the profits
Hm. So you buy short-term protection by taking on a long-term
liability. (If the market keeps going up into March, you're going to
have to unwind those 24 calls. If they're naked, that could be
unpleasant. If you've got them covered, you're not in danger but you
have limited your gains, which is an OK trade for the protection.
But do you have all 24 covered?)
For my case, though, I think I've decided on a simpler solution: go
flat overnight.
I did a study of my 1999 trade history, which included 73 trades
covering 94 overnight gaps. I discovered that the system made
roughly 1/4 of its long profits overnight, BUT that it actually LOST
about 7% on overnight shorts. The strong upward trend in the ND
would probably explain this disparity.
So by going flat at EOD, assuming decent execution on the rolls, I
would have lost about 16% of the system's profits. At first that
didn't sound very good.
Then I realized that I'm quite comfortable with my aggressive
leverage **for the intraday trading environment**. I figure the
chances of getting caught in a can't-exit freefall during the day are
much less than if something dramatic happens overnight. (Is that a
reasonable assumption? Seems like there are almost always upticks
even in a freefall.)
It's just the overnight risk that worries me. And even reducing my
leverage dramatically wouldn't completely protect me from disaster.
But it *would* dramatically lower my returns.
So lowering my leverage only reduces the overnight risk, while
killing my results. But going flat at EOD eliminates the overnight
risk, while allowing me to continue using higher leverage. Even with
the 16%-per-contract reduced profits, my overall net should be much
higher and my risks should be much lower.
Seem reasonable?
Gary
|