Salty Gibbon
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You're a paper trader then are you Tufty ?
Sorry, couldn't resist.
Sorry, couldn't resist.
Disaster Planning
- Thread starter TheBramble
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frugi
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I'm liking the honesty on this thread.
Further information for Mr Brembo (marvel at the incredible stopping power!) -
$ risk, chez Frugi: A standard max loss of 1% per trade (entry +/- stop) and a further max of 3% per day (walk away if I've been unlucky or tending towards idiocy/revenge/gambling etc.)
Target 1% per day, reality 0.5%
An unmitigated disaster scenario of 500 Dow points lost with 3 contracts (the max I will hold in my grubby paws, for the moment) = $7.5k, about a third of capital.
But, should the faeces really fly thro' the fan, there is always the option to take this 33% (or more) swan dive out of the house by way of partial mortgage. Unwelcome of course, but possible, although the money would then be s bit scared, I grant you.
Currently my income is tiny but so are my outgoings, which helps the fear factor.
Further information for Mr Brembo (marvel at the incredible stopping power!) -
$ risk, chez Frugi: A standard max loss of 1% per trade (entry +/- stop) and a further max of 3% per day (walk away if I've been unlucky or tending towards idiocy/revenge/gambling etc.)
Target 1% per day, reality 0.5%
An unmitigated disaster scenario of 500 Dow points lost with 3 contracts (the max I will hold in my grubby paws, for the moment) = $7.5k, about a third of capital.
But, should the faeces really fly thro' the fan, there is always the option to take this 33% (or more) swan dive out of the house by way of partial mortgage. Unwelcome of course, but possible, although the money would then be s bit scared, I grant you.
Currently my income is tiny but so are my outgoings, which helps the fear factor.
TheBramble said:
Difficult to get really resilient ISP coverage - local loop is likely to be common to all dial up and broadband connections regardless of ISP, and an awful lot of them will have common infrastructure - eg at the networking house, the name of which I can't remember, where there is scads of ISP kit.
Also, it will take careful research to ensure that the ISPs you choose are not both resellers of the same higher level capacity provider.
However, one via cable (NTL or Telewest), 1 via broadband of BT infrastructure should do the trick, though it does mean that you're at the mercy of the cable providers as ISP - and NTL are godawful at everything.
That cheeky poster Salty said "You're a paper trader then are you Tufty ?"
I've always managed my overall risk by the following idea:
"If a catastrophe/disaster should hit any position (or positions if they are correlated) it would not alter my life-style."
This hasn't stoppped me in the past doing silly things with my trading pot like 90% on one trade or loosing half of it. This wreckless behaviour with my trading pot was a long time ago. I was aware of the risks, and it was all spare cash, and I was in full time work so it couldn't affect my daily life in any way.
Now days my individual position risk is similar to what's been mentioned on the other thread (less than 1% per trade).
I've always managed my overall risk by the following idea:
"If a catastrophe/disaster should hit any position (or positions if they are correlated) it would not alter my life-style."
This hasn't stoppped me in the past doing silly things with my trading pot like 90% on one trade or loosing half of it. This wreckless behaviour with my trading pot was a long time ago. I was aware of the risks, and it was all spare cash, and I was in full time work so it couldn't affect my daily life in any way.
Now days my individual position risk is similar to what's been mentioned on the other thread (less than 1% per trade).
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My guess is that the majority of 'buy-to-let' investors don't ever consider what would happen if it goes wrong. With a geared investment, one asset class that can be very illiquid, they have put themselves in a position where it is possible that they may find their life-styles changing considerably.
The original question was about the use of a long put to give some crash protection. As an example, using the FTSE (and the principle is exactly the same with the S&P) you could buy a March 4575 put for 18 (i.e. £180 per contract) which simulates exposure to £45,750 in the FTSE. Those who have read my previous posts will know that I am allergic to using my own money to buy an option, so you could sell 2 x March 5025 calls for 12 each, giving you a net +6 to cover commissions etc. This gives cover for any crash below 4525, and in this event Implied Volatility would rise smartish and increase the value of the long puts considerably - particularly if there was a reasonable time left to run. There would be no profit other than the +6 credit on expiry between 4575 and 5025. Main drawback would be a sustained rally thru 5025, above which you lose £20 per point if left uncovered. This is a 1 x 2 short split strike synthetic.
An alternative could be a ratio backspread. Say, sell 1 x April 4825 put for 85, and buy 2 x April 4625 puts for 38. This gives a net credit of +9. If expiry takes place above 4825, then all expire worthless and you keep the net credit. Between 4825 and 4625 you lose on the short 4825 put but without gaining on the long 4625 puts (at expiry) giving a max loss at 4625 at expiry of 200 points (£2000). Below 4625 the long puts go into the money and overall will show a profit below 4425 at expiry. In practise a sharp fall immediately would show a profit at all levels because the increase in IV would be in your favour because you are net long 1x put.
The synthetic theoretically could lose you more because there is unlimited exposure above 5025 - and at 2:1. However, the FTSE would have to rally above 5125 by April expiry to exceed the maximum theoretical loss on the backspread, and I think there is more likelihood of March expiry being close to 4625 than the April expiry being above 5125.
I guess you need to decide which risk you most want to take! 🙂
An alternative could be a ratio backspread. Say, sell 1 x April 4825 put for 85, and buy 2 x April 4625 puts for 38. This gives a net credit of +9. If expiry takes place above 4825, then all expire worthless and you keep the net credit. Between 4825 and 4625 you lose on the short 4825 put but without gaining on the long 4625 puts (at expiry) giving a max loss at 4625 at expiry of 200 points (£2000). Below 4625 the long puts go into the money and overall will show a profit below 4425 at expiry. In practise a sharp fall immediately would show a profit at all levels because the increase in IV would be in your favour because you are net long 1x put.
The synthetic theoretically could lose you more because there is unlimited exposure above 5025 - and at 2:1. However, the FTSE would have to rally above 5125 by April expiry to exceed the maximum theoretical loss on the backspread, and I think there is more likelihood of March expiry being close to 4625 than the April expiry being above 5125.
I guess you need to decide which risk you most want to take! 🙂
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I shouldn't have watched the Equinox Channel 4 TV program last night about Tsunami's.
Scientists are worried about some hugh mountain in the Canaries that may fall into the sea. It'll produce a Tsunami of up to 20m high on the east coast of the US. On the UK's south coast it'll 'only' be 7 to 10m.
Build that into your disaster planning!!!
Scientists are worried about some hugh mountain in the Canaries that may fall into the sea. It'll produce a Tsunami of up to 20m high on the east coast of the US. On the UK's south coast it'll 'only' be 7 to 10m.
Build that into your disaster planning!!!
JumpOff
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Using options to hedge a futures scalping strategy?
Here's a thread I started about this late last summer in the options area of the forums:
http://www.trade2win.com/boards/showthread.php?t=11793
Other than some of the stupid things I said about thinking I'd like to scalp options, I still think the bulk of it was on topic. That Anley is and oracle when it comes to equities!
Since writing that thread, I've come to realize that it's silly to try to limit survivable losses. It would be like having homeowner's insurance with a $20 deductible. Right. You have no risk, but your insurance premiums are more than your mortgage payments - and you can't afford the house anymore!
That said, the idea of purchasing a deep out of the put is still a part of my trading plan. I could start again if I lost my 70% of my pot, but I don't want any margin calls from my broker, saying I owe them 3 times the value of my house.
(Can you spell d.i.v.o.r.c.e. and p.r.i.s.o.n. ?) 😉
This strategy really makes sense for someone who is using leverage/gearing in a profitable tested plan. It allows you maximum gain, and limits your downside so that you may live to trade another day.
JO
Here's a thread I started about this late last summer in the options area of the forums:
http://www.trade2win.com/boards/showthread.php?t=11793
Other than some of the stupid things I said about thinking I'd like to scalp options, I still think the bulk of it was on topic. That Anley is and oracle when it comes to equities!
Since writing that thread, I've come to realize that it's silly to try to limit survivable losses. It would be like having homeowner's insurance with a $20 deductible. Right. You have no risk, but your insurance premiums are more than your mortgage payments - and you can't afford the house anymore!
That said, the idea of purchasing a deep out of the put is still a part of my trading plan. I could start again if I lost my 70% of my pot, but I don't want any margin calls from my broker, saying I owe them 3 times the value of my house.
(Can you spell d.i.v.o.r.c.e. and p.r.i.s.o.n. ?) 😉
This strategy really makes sense for someone who is using leverage/gearing in a profitable tested plan. It allows you maximum gain, and limits your downside so that you may live to trade another day.
JO
