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I'll give an example. I'm evaluating a possible long term bottom in JY
for which I would want to be long the Sep contract. Weekly setup gives
me a 321 spread between entry and stop at weekly PL of 9300 for risk of
$4012/contract. Hourly setup gives me a 161 spread between entry and
stop at hourly PL of 9465 for risk of $2012/contract. A lay-up
consisting of a long Sep JY and long Sep 980 put (in money) costed out
at 160 net or $2000/contract risk. In return for the cost of the smaller
stop up front and a giveup of a couple of hundred points in potential
profit, one can establish a long term trade with profit potential
measured in tens of thousands. Further, a profitable move in the combo
will permit one to pyramid the initial position using profit from the
initial trade.
Earl
----- Original Message -----
From: "Earl Adamy" <eadamy@xxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Tuesday, May 30, 2000 10:23 AM
Subject: [RT] Re: Sector Rotation
> 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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