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There are times when using a long future and in money put or short
future and in money call allows one to establish an initial position in
a trend change without risk of getting stopped out or limit move against
the position. A well chosen combo costs little more than the risk if
filled at a relatively tight stop loss and reduces the risk if filled at
a relatively wide stop. The only disadvantage is that one pays the price
of the stop up front and gives up a small portion of profit up/down to
the strike. In my experience, it's been well worth the cost.
Earl
----- Original Message -----
From: "Gwenael Gautier" <ggautier@xxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Monday, May 29, 2000 9:31 AM
Subject: [RT] Re: Sector Rotation
> Thanks Ira. I understand all that, I am a professional in derivatives,
and have worked
> in about all possible positions in this business for many years now,
and even if not for
> as long as you yet, I also grew up with stocks and options in
particular from kid on.
>
> Options do not create value anyhow, they just transfer your risk, at a
cost. For
> privates this comes at a (very) high transaction cost, which you might
just as well
> reduce by simply using stops on the underlying... (as in your example
below: why bother
> doing something complicated when you can do much more simple and
cheaper? In essence you
> sell short and put in a stop!)
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