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Strategies & Market Trends : Classic TA Workplace -- Ignore unavailable to you. Want to Upgrade?

To: skinowski who wrote (147754)	8/12/2007 9:15:58 PM
From: the-phoenix	Read Replies (1) \| Respond to of 209892

spending some money on SP puts would convert a scary naked long posture into a low risk /slash/ good potential reward situation. Low risk? I lost several hundred thousand dollars last month on just such a "low risk" trade. I had a long position in the ER2 and was short the NQ - fully hedged, completely market-direction neutral. The NQ had outperformed by 7% from mid-April to late June, so was overdue for a correction relative to small caps. Statistically speaking. Instead, it accelerated and outperformed by an additional 10% from July 3rd-August 6th, including 21 straight days of outperformance. Last week it gave back 6%-7% in less than one week, but I am still way under water. Covered calls may be a low risk hedge, but betting one instrument against another is really two naked trades, so double the risk. Statistical anomalies like this are what make probability of ruin calculations just that - probabilities. But even if you have only a 1% probability of ruin, eventually you will be ruined, if you continue to play the game long enough. Sobering thought.