January Effect 2006 Message Board

STOCKTALK

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Strategies & Market Trends : January Effect 2006

IWM 259.65

-1.4%

Jan 30 4:00 PM EST

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To: rrufff who wrote (27)	12/31/2005 10:01:17 AM
From: RockyBalboa	Read Replies (1) of 79

I purchased futures options (on the ER2 contract); they come in at a size of 100 times the Russell and are fairly priced with implied volatility at around 18. Those ones I bought are slighlty out of the money. From the chart I see that an initial test of some support (ie: 650) in the RUT index is possible, if that does not hold, the next stop would be the October low, 620. One such put has a nominal size of currently $67K and would effectively hedge about $24k of index exposure at current levels. (With the additional effect that the put delta rises when the index falls further. To secure some gains the strategy calls for selling half size of the puts with lower strike prices once initial support is tested as the short exposure from the puts has gone up by then; example: with the index at 650 the put delta would nearly double therefore an initially market-neutral portfolio would be short nearly 100% by then).

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