Drawdowns are a normal part of market activity. In investing
they are called losses because they aren't expected. In
trading they are called drawdowns because, although unpleasant we
expect a drawdown at some point. The depth and duration are what
can be demoralizing if you are not emotionally prepared. The best
way to prepare is to "sell down to the sleeping point". Don't bet
too much! Smart hedge fund investors add to there positions when
the fund manager is experiencing a drawdown. So, not only should
you
notsell out of a system during a drawdown but, you
should consider increasing your stake.
Another strategy if you are expecting more downside in your
position, is to write some covered puts/calls. Let's take the
current trade for example. SPY is currently trading at 134.11. You
can short the SPY MAY 13 135 Calls(out-of-the-money Calls) at 0.32.
As long as the SPY settles(closes) below 135 on expiration(May 13),
then the options expire worthless and you pocket the premium. If
you are expecting to take further heat in your current position,
this strategy generates a steady stream of cash in the mean
time.
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Drawdowns are a normal part
Buy Sell Discussion
Posted by cal1 on 11th of May 2011 at 02:41 pm
Drawdowns are a normal part of market activity. In investing they are called losses because they aren't expected. In trading they are called drawdowns because, although unpleasant we expect a drawdown at some point. The depth and duration are what can be demoralizing if you are not emotionally prepared. The best way to prepare is to "sell down to the sleeping point". Don't bet too much! Smart hedge fund investors add to there positions when the fund manager is experiencing a drawdown. So, not only should you notsell out of a system during a drawdown but, you should consider increasing your stake.
Another strategy if you are
Posted by cw12 on 11th of May 2011 at 03:04 pm
Another strategy if you are expecting more downside in your position, is to write some covered puts/calls. Let's take the current trade for example. SPY is currently trading at 134.11. You can short the SPY MAY 13 135 Calls(out-of-the-money Calls) at 0.32. As long as the SPY settles(closes) below 135 on expiration(May 13), then the options expire worthless and you pocket the premium. If you are expecting to take further heat in your current position, this strategy generates a steady stream of cash in the mean time.