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Everyone seems to complain about buying puts or calls for insurance against
the unknown. How much do you spend on Fire insurance? When was the last
time your house burned down? How much do you pay for auto insurance? When
was the last time your car was totaled? Out here there is earthquake
insurance? Look at those that didn't have it during the latest SF and LA
quakes. It was worth carrying it for 20 years, because that one time, even
with the 15% deduction, it paid to have it and what was received was 100
times more then the 20 years of premiums. I still carry Earthquake
insurance and I have not had to use it yet and I hope that I never do. The
peace of mind is worth the cost. How about flood insurance? Yet you
complain about carrying insurance on your cash. Even retail stores and
service business carry insurance against the uncontrollable or unforeseen.
Those that live in a fools paradise might end up like so many did in 1987
and 1929, broke and deeply in debt. If you are given the tools and
instruments to protect yourself and you don't, what befalls you is
deserved. Ira.
Gary Fritz wrote:
> 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
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