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Strategies & Market Trends : The Player's Club -- Ignore unavailable to you. Want to Upgrade?

To: peter n matzke who wrote (4055)	1/11/2000 6:59:00 AM
From: GROUND ZERO™	Respond to of 11513

Hi Peter, >>GZ, how will you use puts and calls in the fund? as a hedge, leverage, or spreads??? Pmail if you prefer.<< Not a problem here... there are so many ways of taking advantage of the option market in tandem with the underlying contracts... so, let's take the simplest example... if the markets have sold off and a trading cycle low and a positive chart pattern is formed, one can simply short an at the money put as well as taking a long position with the contracts... these are really two separate trades... no one really knows how far the rally would move, it could move 20 points higher and trade there for a week and then retest the lows or move still lower..... if the market then resumes the rally, the contract can benefit from the entire rally at 100% delta... if the market never returns to the at the money strike price, then that would be the easiest 50 points one can take out of the market... at the money options are now selling for about 50 points..... On the other hand, if the market trades about 20-40 points higher for that week, and then moves lower, a money management stop would be in place to prevent a loss and a profit could be taken on that contract... whether a short position would be taken at that point depends on what the market is doing at that time... if the market stops us out and then resumes the rally, we would still benefit from the short put and I'll be looking for another place to re-enter the long side for the contracts... in that case, the short put can simply be kept as additional gravy... now, if the market sells off and approaches the strike price of that short put, a sell stop to enter a short contract position can then be taken to protect the short put when the contract trades into the strike price... at that point, there is no way to be certain whether the market will then continue much lower... if the markets appear weak based on chart pattern and other indicators, then a new net short contract position can be entered as well.... although the fund would not primarily be a hedge fund, the covered put position can also be kept as a separate trade... at that point, we would be short the contract and also have a covered short put position as two totally separate trades for an easy 50 point if the market continues lower... there are numerous ways of using the options market, but I think what I've describe to you may be the simplest and cleanest way of generating profit using both the options market and the contract in tandem as needed.. I see them as the left and right hands of the same market..... I hope my answer was clear to you..... My Best... GZ