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Strategies & Market Trends : Portfolio Protection + Money Management for the Long Term -- Ignore unavailable to you. Want to Upgrade?

To: BDR who wrote (16)	4/9/2000 10:09:00 AM
From: Dale Baker	Respond to of 57

My rule with long margin is never more than 20%, period. The portfolio would have to move against me pretty drastically to force a margin call, and stop loss orders keep that from happening. In a real bear market I would go up to 50% margin on the short side, again with good stops. The people who were nailed last week were heavily into margin (50% or more) and didn't have stops to sell stocks for them - so their brokers did it at the bottom. Margin is somewhere between a Bic lighter and a .38 revolver. Useful and often necessary but must be treated with caution and respect.

To: BDR who wrote (16)	4/9/2000 1:50:00 PM
From: BDR	Read Replies (2) \| Respond to of 57

I thought I would take a stab at costing out protective puts. I am using the QQQ Index and looking at buying out of the money puts. This doesn't completely hedge the portfolio but it provides some coverage against a disaster. Value of portfolio $100,000 QQQ Friday's close 106.625 June 90 Puts 3.875 Friday's ask at the close June 100 Puts 7 Sept 90 Puts 6.875 Sept 100 Puts 10.25 Assuming beta of Portfolio = 1 If beta is greater than one then more puts would need to purchased. More on this later. Does anyone know a good source for beta or volatility data? Disaster insurance #Puts to buy = Value of Portfolio/(Strike Price X 100) Cost Commission Total June 90 Puts 11 4262.50 39.25 4301.75 June 100 Puts 10 7000 37.5 7037.50 Sept 90 Puts 11 7562.50 39.25 7601.75 Sept 100 Puts 10 10250 37.5 10287.50 So, using the June 90 Puts $4,301.75 buys you insurance against a drop below 90 in the next three months. You can buy the same insurance for twice as long for less than twice the money with the Sept 90s. Nine months insurance would be cheaper still on a per month cost. The first 16% of the loss would not be covered. Sounds expensive. Discussion?