I've been reading up on SSFs and fail to see any real benefit beyond leverage. They are far less complicated than options, however, they don't offer the "protection" options do if the trade doesn't go the "right way". A lot of folks say SSFs are a way to hedge. I don't see what they offer over options in that regard. With options, you're out your premium in the worst case scenario, with SSFs you could be completely wiped out quite easily <B>AND</B> owe your broker money to settle the <b>obligation</b> you have. Just imagine if one had purchased a few SSFs for THC .... Edjumicate me.
We're all newbs when it comes to SSF. There's a couple old-timers on here who have been trading them since a whole 12 hours ago. They have an advantage in selling them over selling short the stock. No uptick rule. You can sell the SSF as it drops. Any time you use margin there's that risk of being wiped out and owing money to the broker. And as of now at least, they aren't subject to daytrading restrictions if you have less than $25,000 in your account. And for some professional traders who are prevented by their employment contract from trading stocks and options from a personal account, they are allowed to trade SSFs.
So honestly, what do you think of the risk/reward? Of course, I'm asking this in the sincerest manner. Thanks for the response.
I'm trying to work that out too. No daytrade rule, no uptick rule. Ordinarily you can't be long and short the same stock, but with SSF you can. And I don't think they have time-decay like options. A lot of little things that seem trivial, but I guess when you add them up the SSF start to seem useful. They'll take a litttle time to get used to, but from today's trading I don't think they'll be the flop that a lot of people were predicting. Just because they don't do much volume in Europe doesn't mean they won't here.
I would only daytrade SSF's; you don't want to hold SSF's overnight on 20% margin and see the stock gap 20% against you the next day. Commodities would rarely gap 20%, but stocks easily can. Right now I'm suffering under the PDT rule, so I hope SSF's get going quickly with sufficient liquidity.
I'm not sure I'll buy the uptick rule as an advantage over options. There's no uptick rule there either. You can buy puts and calls so essentially you can go long and short on the same stock. No daytrade rule is certainly an advantage to some. Time decay, a delta of less than 1 for the most part and the rest of the greeks are certainly in the negative column for options. You can also have an option go against you even when the trade goes in the "right" direction. This can never happen w/ SSFs. When I first pondered SSFs I was very excited and couldn't wait to start trading them. But the more I read, the more I get discouraged. I think it is strictly due to my risk tolerance (which is relatively low I suppose). So the stock price doesn't move 1 for 1 and time is not my friend (at least not for <b>buying</b> calls and puts). I guess my mindset is that this is the price I pay for protecting my downside. The fact that the most I can lose is the premium is comforting in an uncomfortable world. I still haven't ruled out SSFs ... I'm just learning and weighing the pros and cons. Thanks for the discussion and your opinions, they've been thought provoking.
They only thing I don't get is that they are going to come out with a SSF for the DIA. Now am I crazy or is that just silly? What is cool though is they will have some narrow indices (sectors) allowing us, in a sense, to trade a basket of like SSFs.
I'm reminded of another advantage of SSFs over options ... spreads. I don't know if this is true as of yet, but it looks like spreads will be much tighter on SSFs and liquidity will probably be pretty good.
you better hedge the position with cheap, out-of-money options, (short SSF hedged with cheap OM calls, for example) to avoid wipeout. Sooner or later you will wipe out with that kind of leverage and no hedge. I'm a pure-daytrader, holding no o/n's. I've traded in Datek with the 4x buying power, so SSF's are similar. My main problem is small amount of capital (about $5k) and PDT rule on top of that. If I can freely trade even 6 times a week, there'd be little to worry about. As it is, I'll be opening accounts at 2 brokers who meet my needs. I might trade stocks 3 times a week and SSF's 3 times a week for total 6 roundtrip daytrades. p.s.: The complaints about the uptick rule are bullshit. Unless you can short at the exact top-tick, you shouldn't complain. With the spreads at a penny apart, if you go short at market, you'll be filled very quickly because uptick only requires 1 penny up. I've rarely missed a short because of the uptick rule. I just went short looking for at least 20 cents on the downside.
I think you may not short very much. I sold VZ yesterday and then waited over 4 minutes waiting for an uptick. It filled at 17 cents less than the outright sell. When you are trading a couple thousand shares it DOES make a difference. Bert