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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: Chip McVickar who wrote (17960)	5/5/1998 4:53:00 PM
From: Tommaso	Respond to of 94695

Thomas Gray: "Ode on a Distant Prospect of Eton College": ". . . where ignorance is bliss, / 'Tis folly to be wise." What Gray meant was that there was no point in interfering with the happiness of the young. I am afraid that a lot of the blissfully ignorant now are the middle-aged who are counting on stock investments for a luxurious retirement.

To: Chip McVickar who wrote (17960)	5/5/1998 10:47:00 PM
From: Bull RidaH	Read Replies (2) \| Respond to of 94695

Chip, Concerning your desire to hedge a blue-chip stock portfolio, I couldn't agree more with Haim about staying away from puts. In order to gain the most efficient hedge for that type portfolio, I would simply sell at the money calls on each of the stocks within the portfolio. This will give you at least 3-5% downside protection, while allowing you to lock in a higher net price for the stock if you proved to be wrong in your cautious stance. Once your read is confirmed, and your satisfied that a downtrend is established, in order to provide you protection beyond the 3-5% given by selling the calls, I would simply sell a futures contract that correlates to your portfolio size. The E-Mini S&P would hedge a $50,000 portfolio, a Dow contract would hedge an $80,000 portfolio, and a regular S&P or NYSE Composite contract would hedge a $250,000 portfolio (you'd need $2,500 in a futures account for each $50,000 in contract value you open). While the contract is sold, you would be benefitting from a slight daily futures contract price erosion, and when the market has sold off to your satisfaction and you feel it has reached a bottom, then you may buy the contract back, thereby locking in a profit on your hedge, and ride the market back up with your original portfolio. The calls you sold would have lost quite a bit of premium, even if the market came all the way back up to the point where you sold them. So this allows you to avoid having to buy puts, which are extremely overpriced in general due to everyone else looking to buy them for portfolio insurance. And instead of time premium working against you as it would in owning overpriced puts, it would be working FOR you on both the calls you sold, and the futures contract you sold. The great thing about this strategy is if you prove to be wrong about the market selling off, and it just stays where it is, or drifts slightly lower (not nearly enough to avoid losses on owning puts), you still make money on the calls, and at least you wouldn't lose anything on the futures contract if the market just stands still. On the other hand, puts would be a total loss. Regards, David

To: Chip McVickar who wrote (17960)	5/14/1998 8:08:00 AM
From: Arik T.G.	Read Replies (1) \| Respond to of 94695

Chip, The covered call + shorting the index after the trend change strategy looks very promising, but requires that you will take hard decisions. Since Aug '97 I was promoting two scenarios. One was that the top was reached Aug 6th, and the bear would grind the market down to 4500. The other was a run to over 9000 in spring '98 and then the biggest crash you ever saw. After the recovery from the Oct mini crash I was left with one scenario. Therefore it is clear why I recommend selling a long term portfolio at the current levels, even as I believe another run to 9800 is possible. Buy and hold was a good strategy for 15 years, since Dow 800 in 1982. Stocks like MSFT and DELL showed tremendous gains. This cannot last forever. Everybody knows that, but almost everybody ACT as if this market is perpetum mobile, and as if risk is not a factor in the risk-reward equation. I repeat my recommendation- Sell now, buy back much much lower, after the bear is 2-3 years old- but if you want to see the long term trend change first, then you have to wait till the Dow will break the 200 DMA (around 8200), and sell on the rebound. My guess is that the Dow will correct from around 7800 to around 8500. And that would be the first correction UP in a long term down trend. ATG