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Don:
There are many ways to trade volatility using the underlying and derivatives.
The big up stairs traders use the S&P, NASD and now other index futures and
trade them against bundles of stock that replicate the future. For the day
trader or smaller trader there are positions of options against options and
options against the underlying. One example. The night before the first Friday
of the month, when all the reports come out. you buy 10 at the money bond calls
and short 5 of the futures. That would be putting on what is known as a delta
neutral position. If the bonds spike up you liquidate some of the calls to
neutralize the position again. If the underlying spikes down you buy in some of
the futures to neutralize the position. So if you get a major pendulum swing
up and then down you would sell out calls and then on the swing down buy in
futures. You can do it long puts and long futures. You can do it with a
greater ratio on out of the money calls or out of the money puts. It all
depends on what you feel the range of the swing can be and the degree of
leverage you are looking for. With INTC, AAPL, NOK and many others either
calls or puts against the underlying would have made you a lot of money. With
no move, liquidate the position and you have lost the opportunity cost.
Commissions and maybe some volatility loss in the options. There are numerous
other strategies that allow for leverage under these conditions. You always
look for positions with unlimited profit in either direction and limited risk.
With positions noted above the higher it goes the longer you get or the lower it
goes the shorter you get. It is always nice to be able to buy into weakness or
sell into strength and take a profit home. HOpe that this helps a little and
gives you a few ideas. Have a good week end. Ira
Don Ewers wrote:
> Ira,
> Can you enlighten us with an example, since I only trade, "what are billed
> as major event s" from the "news reversal trading technique". Obviously your
> expertise utilizing options would be a welcome trading technique that we may
> be able to learn from. I normally go flat ahead of these events feeling it
> is gambling in lieu of trading, so I am anxious to hear your reply.
> don ewers
> ----- Original Message -----
> From: "Ira Tunik" <ist@xxxxxx>
> To: <realtraders@xxxxxxxxxxx>
> Sent: Thursday, December 07, 2000 1:22 AM
> Subject: Re: [RT] Dow
>
> >
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