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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: brec who wrote (8108)	4/29/2000 5:58:00 PM
From: OZ	Respond to of 18137

I agree totally. But the size or allocation of the risk is decided when the positions are entered. When you buy $500 worth of stock it is the same as when you short $500 worth of stock (with the exceptions I already noted on the previous post). But what my previous post tried to show is that what you are calculating to compute the adjusted risk on the short side is not correct. In the previous post the value of the short position is 400 and not 600. Therefore it is of equal risk to the long position that you cited that is also worth 400. the value of a long position is what you paid for it plus any gains or losses (which happens to be the present value of the stock) The value of the short position is what you sold it for plus any gain or losses. (which is NOT THE PRESENT VALUE of the stock). In other words, a $500 short position that losses $100 because the stock went to $600 is now worth $400 (500-100) and not $600 (or the present value of the stock) as you have stated. $400 now becomes the number that is now used to figure the percentages that you stated. NOT $600. With shorts the value of the position is not the same as the value of the stock. Therefore it is equal to the $500 long that losses $100 and becomes worth only $400. OZ

To: brec who wrote (8108)	4/29/2000 6:15:00 PM
From: Cormac	Read Replies (1) \| Respond to of 18137

Brec - I am sorry...am not following your logic to your conclusion It is a given that any short position has more risk than a long position...no one can or should argue that point... So if you were to attempt to argue relative (whatever that means) risk in long Vs. short you have to be able to compare apples to apples...create a laboratory where you are comparing like to like Let's say I have two accts: a $100,000 acct and sell short a stock 1000 shares @ $30, setting a $10 stop (for the sake of argument let's not worry about margin, buying power, marked to market etc), my potential risk to equity (keeping stop)is 10 * 1000 = $10,000... short 1000 @ $30 @10 am acct value $100,000 10:30 stock @$40 acct value $90,000 cover @ 40 @ 10:31 acct value $90,000 a $100,000 acct and buy long a stock 1000 shares @ $30, setting a $10 stop, my potential risk to equity (keeping stop)is 10 *1000 = $10,000 long 1000 @ $30 @ 10 am acct value $100,000 10:30 am stock @$20 acct value $90,000 close @ 20 @ 10:31 am acct value $90,000 Risk in theory and in effect are the same in both accounts. I know I have kept it simple...hope not too simple, or am I missing your point entirely, always a possibility, I can be dense and/or single-minded at times. There are other factors that(to some traders)increase the risk of shorts but IMO not from a strict valuation point of view Respectfully, Cormac