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James if I would do it I will like to think that one put as just one additional hedge position in my portfolio, I think that I will like that to expire but I will never let it if market comes and test 370 I will like to take it out as I think that a test of 50 days MA is normal and should hold well in this particular case, however on break of 370 i.e. two closes below 370 I will buy a 350 put but this time I will sell a 320 expecting that market may move up after retracing 40% of the current move up, here my risk is higher and for me taking the leg out of the long will be a tricky decision, but if things really become ugly I will leg out of the long position at 200 days MA and take a chance on the naked put, the market in current interest rate environment will bounce of 200 days very very strong this is all hythetical but once you are using derivatives you need to be proactive, that is if the first put is exercised you would save some lost profits and if second is exercised you make good money if market comes back right up that is what we have been doing recently during this big move down...I will also consider selling a 15% or 25% higher call to pay for my in case correction comes I not only take my put out but also the call,, a perfect hedge is impossible and for me either you are smart investor or a dormant one which does not look at daily movements as threat to his or her account if you are of the later type all this is real botheration but if you are spending time in front of screen atleast 1 hout a day doing your research this is well worth,,, a combo of call and put a coverd short call and a put is great the last I hace discussed it has to be covered and not naked a 40 K exposure covered by outside the money call of 13$ so you loose upside if 440 is taken out what you are making on 40 K RUT account above 440 will be lost as premiums go higher but in case of a volatility the chances are you will see back and forth and may be able to get out of the two legs when RUT comes and test the lower end of the range at 380 or 375 that will give you to make money on the long put and the short call you take this put at the same time... it looks simple here and I agree but it is all time job I do it it helps my good profits but I agree we need to learn keep asking me questions.. apply it to SPZ and see if what I say make sense do it on paper, once you master it you will see this a very helpful tool in playing market volatility... I hope I can help you as much I can.. |
