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Strategies & Market Trends : Selling Puts: Have Cash Will Travel
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To: OX who wrote (839)1/21/2000 3:48:00 PM
From: tyc:>  Read Replies (2) of 1235
 
<< just a little commission/spread intensive to put the hedge on and off.

When you talk about hedging, you are really talking about extending the profit profile of the option position. I check the delta of my position once a week. It is comforting to know that you are starting next week with a bias equal to only (say) 55 shares long . Now if the market turns against the position, you know that to short even only 100 shares will be adding value to the position and thus EXTENDING its profit profile. The first thing your hedge must do is cover commission costs every point after that is contributing towards the goal. (Even if the position is losing money in the move, the hedge is causing LESS to be lost and therefore enhancing the profit profile)

Here in Canada, commission costs on the common are cheaper than commission costs on options.



>> I have 2 problems w/ short straddles... one is that I'm almost surely going to have to repair one side and

I don't look at it as "repair", but rather "enhancement" by extending the profit profile I am enhancing ultimate profit and safety.

>> I have a hard enough time determining UP or DOWN direction,

I would suggest you use more volatile stocks. I guarantee you will know whether my stock is going up or down !! If I don't know, then I don't need a hedge. Volatile stocks give the better premiums and better opportunity for enhancement. Moreover Dave was talking about a major correction. I also use MACD, stochastics, and RSI to help form my opinions.
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