It took about 3 hours starting at 8:00 am to cover both RMBS and OVER with the least amount of additional damage. I was very lucky that it wasn't worse. Thanks for your help. Geo.
Whatever You do, if You want to use options to secure Your position You must be ready for it before You open any position. Options limit risk as well as profits. If You do that later, then Your favorable move must be bigger then before to cover cost of options. (Assuming, that strategies are relatively simple )
Chris, I think so. After all, you saw the jam I was in. I got out of it with the help from this board with piddly loss in pre market. My loss was my own stupidity on Thursday and Friday. A whole market saw it except me. I revisited options today, because of this board, for the first time since I was patterned precisely on October 4 by Mr. Stock. 4 days from 9/29 rule enactment, I'm told. I was a first day baby! They called my wife at home and freaked her out - like I was in a motel with a hooker doing trim. Send an email if you see something on an option. I have a hair across on KLAC, QQQ, actually I'm 100% full cash full margin short with very tight stops. I was stopped out plenty today! I cannot think of anyone who says this is sustainable-yet everyone of my cover stops has been activated except Computer Associates. Good trading to you. Geo.
Just interested to know why you are still shorting against the trend? My shorts flipped Thursday to long and I'm still holding. It is very possible with the surge Friday and the Breadth and follow through today, that we could have another 1-2 week rally up, or even longer. The bigger money takes days + to employ fully and days or longer to remove, so even though we may trade down in the near future (skiddish day/swing traders), we have a high probability of seeing a minor swing up over the next week or month. Its less probable things will come crashing down soon, but if it does I'll flip my positions and follow it rather than fight it. I believe the 4th Qtr GDP numbers got the bigger money moving/repositioning in equities on Friday. Tomorrow or the next day you'll probably make money shorting though.
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I guess I'm a permabear of sorts. I enjoy the TA guy at INO.com for informational purposes, I don't know why. I read his report, primarily directed at commods, every morning and evening. He noted that the rally on Friday and into this week was not accompanied by institutional interest. I also noticed this watching prints on my usual suspects. So I posted this elsewhere and was skewered - folks pointing out that these were, what, 2.25B days! Anyway, that's what I saw in the stocks I watch. Obviously, I'm not looking at some of the big listed issues. I don't pay so much attention to trend unless I am watching the Qs, or stocks that follow the indices closely for a trade. I prefer to watch for wounded animals and jive. Case in point was Epiphany and Doubleclick yeterday and today. I happen to think Juniper Networks is finished, a view not shared by many. I have had good luck buying its 12.5 put when Juniper runs up into the 12s (costs .90 or .95) and selling for 1.30 to 1.40 or so when the market turns and JNPR with it down into the 11s. Your point on institutions taking time to move in is a good one. On the other hand, I really believe that they are skitterish in the wake of 9/11 (I know I am), their declining ports and profits (Fidelity reported a clobbering). Aside from that lunacy with the OVER and RMBS that prompted me to start this thread, I've actually been using very tight stops and letting the market throw me out the door when I'm wrong. That's one of the big reasons I like the low commish at IB. Geo.
I'll be even blunter- cut your losses fast, let your winners run.... but I also disagree that using a fancy option recovery strategy will not work... Your position was initially short shares.. everyone here talks about buying calls to turn it into a synthetic put. THAT IS STILL SHORT the market but for a limited risk situation... You were short deltas and you needed to either get to neutral or to the long side. Because you were short stock - your deltas on the short were ALWAYS -1 per share... When the stock shifted its personality away from your short side bias to a long side bias.. You had 2 choices 1) Admit you were wrong and cut the loss 2) Be flexibile and move to a delta neutral straddle position by buying 2 times as many calls as shares that you are short... if short 4000 shares buy 80 calls at the money. This creates a long straddle. Buying 120 calls creates a 3X2 upward bias ratio straddle... it would be net long 2000 deltas. Options give you options - You just have to have an open enough mind to realize that sometimes the loss is the best medicine to take but you must always consider your choices Here is an example that novice traders fail to look at and they leave MAJOR sums of money on the table... You are in a put spread or a call spread that has moved significantly in your favor and you are contemplating your exit at your profit goal - always look at the price of the long box... many times you receive much more by making a box .... Example... lets say you were in a spread that you paid 1.00 for and its at 3.20 by 3.60 you can exit at probably 3.30 making 2.30 profit. if the other side of the 5 dollar box is 1.30 by 1.40... say you had bought the 60-55 put spread and the stock is 52 You look at the 55-60 call spread and see what its price is ... using the example numbers above .. your original cost is 1.00 you buy the call spread for 1.40 taking the cost to 2.40 but the box is worth 5.00 this means a 2.60 profit. There is a 30 cent greater profit by boxing than by exiting at 3.30 in the spread... This is free money for the knowledable trader by being flexilbe enough to see the field. Synthetics are based on that concept also... If the stock is 35 and the 35 put is 2.75 this makes the synthetic call 2.75 to buy - if the real call is offered at 2.90 why buy the same risk graph for more. I always price the synthetic variant of the position I am considering...
DrSynthetic you make some excellent points . The use of boxes and synthetics are exactly the things that Charles Cottle discusses in his fascinating book. In practice, how often have you been able to use the technique of the example which you've provided? (I'm really not experienced enough in this area to know.) Also, it's important to note that when pricing a synthetic call, there is a cost of carry associated with the long stock position. Thanks again.