Sorry to hear about those of you who lost on those volatile
ETFs. Here's a thought on insurance, which might apply mostly to
longer-term traders. One of my strategies involves holding longs
and shorts for anywhere from a few weeks to a few months. To
protect those positions, I've been thinking of buying crappy, way
out of the money calls and puts to protect them, which are usually
quite cheap since there's little chance they'll ever get hit. Say I
shorted SNY yesterday, which closed at $41.50. (I didn't, but let's
say I did.) I could have then bought the March 16th $55 call for
$0.05 each. (You have to admit that that's cheap insurance in case
the price skyrockets. Only 0.12% of my entry price.) If the price
went to the stratosphere for some reason after hours, my maximum
loss would be [ $41.50 - $55 - $0.05 ] / $41.55 = -32%. Would I be
happy? Absolutely not! But my losses would be limited, and if my
SNY short was only 10% of my portfolio, my overall loss would be
limited to 3.2%. Not a great trading day for sure, but nothing I
couldn't get over either. So, just keep in mind that most stocks
& ETFs have fairly cheap far out-of-the-money calls and puts
that you can buy very inexpensively. If it helps you sleep at
night, then it's worth it. Just a thought.
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Sorry to hear about those
Posted by user32 on 6th of Feb 2018 at 01:14 pm
Sorry to hear about those of you who lost on those volatile ETFs. Here's a thought on insurance, which might apply mostly to longer-term traders. One of my strategies involves holding longs and shorts for anywhere from a few weeks to a few months. To protect those positions, I've been thinking of buying crappy, way out of the money calls and puts to protect them, which are usually quite cheap since there's little chance they'll ever get hit. Say I shorted SNY yesterday, which closed at $41.50. (I didn't, but let's say I did.) I could have then bought the March 16th $55 call for $0.05 each. (You have to admit that that's cheap insurance in case the price skyrockets. Only 0.12% of my entry price.) If the price went to the stratosphere for some reason after hours, my maximum loss would be [ $41.50 - $55 - $0.05 ] / $41.55 = -32%. Would I be happy? Absolutely not! But my losses would be limited, and if my SNY short was only 10% of my portfolio, my overall loss would be limited to 3.2%. Not a great trading day for sure, but nothing I couldn't get over either. So, just keep in mind that most stocks & ETFs have fairly cheap far out-of-the-money calls and puts that you can buy very inexpensively. If it helps you sleep at night, then it's worth it. Just a thought.