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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (21335)	11/12/1998 1:51:00 AM
From: James C. Mc Gowan	Read Replies (1) \| Respond to of 50167

IKE; thanks for your response re: portfolio protection,this is a great help to me, and I hope to others with limited investing experience ,in employing your approaches. I wouldn't expect to be able to follow your trades on individual stocks, specifically, as this would presume that I had the capacity to read the market on a day by day basis as you do. Following your reasoning on the key technology leaders has been most helpful. I now have taken a position in a RUT index fund in order to benefit from an overdue recovery in the small cap area, as you are now recommending. Please bear with me, to see if I understand how you would hedge this play. If I had $40K in a RUT fund, would I then be wise to buy a March RUT put option at a strike of about 370, which would be the 50 EMA now. If I bought 1 contract, I believe this would cover my exposure (1 contract= current value of RUT at approx. $400. times 100 = $40K) The cost is currently about $13. per contract. So. for $1300. I protect my $40K thru expiry in March. Then, if RUT goes up, I continue to watch for opportunity to purchase further out put at most reasonable price, to cover out another 4 months or so, beyond March expiry. Same idea for basket of NDX leaders or buying SPX puts to cover investment for SP500 index funds? If I understand your approach, you don't care about letting the puts expire worthless so long as you can hold your long position and benefit from the anticipated appreciation, while having the advantage of a leveraged insurance policy at a relatively minimal cost, to cash in on in the event of a dip in the market. As I write this, I realize how simplistic it sounds, but just trying to get a handle on a concrete example of your approach. Thanks for your patience. vocex