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Stock traders thread (pg. 7)
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| rabbitjoker |
"€720 billion [EU] bailout plan [approved] in an effort to stanch a burgeoning sovereign-debt crisis that began in Greece but now threatens the stability of financial markets world-wide." - WSJ
Terrible plan IMO. The system needs a few big failures to clean out excess demand and create realistic equalibrium. These bail-outs are just creating an ever-more fragile house of cards. |
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| Skipper |
| quote: | Originally posted by rabbitjoker
"€720 billion [EU] bailout plan [approved] in an effort to stanch a burgeoning sovereign-debt crisis that began in Greece but now threatens the stability of financial markets world-wide." - WSJ
Terrible plan IMO. The system needs a few big failures to clean out excess demand and create realistic equalibrium. These bail-outs are just creating an ever-more fragile house of cards. |
Agreed, but it's just like the US bank bailout - no politician wants a financial collapse on their watch. So they just spend spend spend and let some future leader deal with it.
When government finances begin truly collapsing under the weight of their own debt, it's going to be depression-style ugly IMO. |
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| Nrg2Nfinit |
| ride the wave man.. ride the wave :) |
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| jester |
Which is the the best ETF for Emerging Markets?
This one caught my eye...
VWO |
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| c-mal |
I have some money in ATVI (Activision Blizzard - developers/publishers of Call of Duty and Warcraft games)
I bought at 9.87 in March 2009 and another sum at 10.96 in September.
The stock's been going kind of wonky this year and I almost sold last week, but I'll see how it plays out a little while longer. |
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| Skipper |
I don't do a lot of trading in my PA but today I locked in a nice 40% profit on a gold stock I bought in December (when gold was peaking, so this has been a good pick). Whee. :)
Debating what to buy next. |
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| tvmann |
Interesting thing that happened last week was that some people who use stop-loss orders got burned.
During that very fast melt-down their stops were triggered, their stocks got sold and then the stocks quickly bounced back up. Many people did not have time to buy back in, so if they buy back now it's going to cost them a fair amount more than they received.
Some trades during the dip were later cancelled by NASDAQ, but not all.
I guess using a protective PUT option would have been better last week, but even with PUTs the trader would need to be very fast and monitoring the situation closely, or have carefully preplanned their PUT strategy.
Personally I don't use either stop-loss orders or protective PUTs, although I think they would have helped me several times in the past in more "normal" down-moves. |
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| DigiNut |
| quote: | Originally posted by tvmann
I guess using a protective PUT option would have been better last week, but even with PUTs the trader would need to be very fast and monitoring the situation closely, or have carefully preplanned their PUT strategy. |
Why would the trader have to be very fast? I had a few puts and collars and didn't have to do a damn thing (other than laugh at the absurdity all the way through the meltdown).
Sure, I could have made a few extra bucks selling those puts at the ridiculous low, but then it becomes a speculative put, not a protective one.
Protective puts/collars/spreads aren't really "trades" at all, they're expected to either expire worthless or be sold ITM on expiration date. |
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| tvmann |
| quote: | Originally posted by DigiNut
Why would the trader have to be very fast? I had a few puts and collars and didn't have to do a damn thing (other than laugh at the absurdity all the way through the meltdown).
Sure, I could have made a few extra bucks selling those puts at the ridiculous low, but then it becomes a speculative put, not a protective one.
Protective puts/collars/spreads aren't really "trades" at all, they're expected to either expire worthless or be sold ITM on expiration date. |
Well I'm no options trader so I'm not up to speed on this stuff, but I was thinking of the probably typical situation where someone has big gains in a stock (say 100%) and wants to try to protect the gains by having some PUTs, just a simple "insurance" strategy, as an alternative to stop-loss orders that burned people who sold low in the 1 hour melt-down.
If the whole market and the stock takes a big dive like recently, the trader needs to make a couple of decisions, assuming no pre-entered orders to sell or execute the PUTs were placed. Now, do the decisions need to made quickly, hmmmm maybe not, I'm undecided on this, you might be right, anyway the decisions to be made:
1 - decide whether the dive is going to continue and last a long time as in a double-dip recession, a repeat of the mess of 2008/2009 (Dow Jones 6600), or is it just a short-term panic situation. At the bottom, nobody knows if it's the bottom. If the Euro-Greece bailout plan didn't get announced I think the recent melt-down would have continued.
2 - decide whether to execute the PUTs (selling the stock at the exercise price) possibly resulting in a big capital gain (and maybe big tax). The advantage is the trader then has the cash to buy the stock back later, maybe lower if the downdraft continues.
2b - OR decide to sell the PUTs ITM (in-the-money) as you say, that would produce a capital gain but probably lots less than from selling a stock that was up 100%. Yes if the stock jumps back up the selling of the option was sort of a speculative gain but if the stock stays down or drops more then the proceeds from the PUTs is a nice "insurance payout" that reduces the pain (at least partially).
2c - OR just wait to see what happens, and do nothing
Seems to me it wouldn't be an easy decision to make during a melt-down, and whichever way the trader went, it could easily be the wrong decision, or less than optimal.
My thinking is that when you own stocks, there is no really good way to protect yourself other than to watch them very closely and act accordingly. Any protection strategy seems iffy and some like stop-loss could backfire. |
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| DigiNut |
| quote: | Originally posted by tvmann
Well I'm no options trader so I'm not up to speed on this stuff, but I was thinking of the probably typical situation where someone has big gains in a stock (say 100%) and wants to try to protect the gains by having some PUTs, just a simple "insurance" strategy, as an alternative to stop-loss orders that burned people who sold low in the 1 hour melt-down. |
I rarely say this when it comes to options, but you're kind of overanalyzing.
Option costs are composed of an intrinsic value (how deep in the money) and a time value (premium). When you buy protective puts, you treat the premium as a sunk cost. It's insurance.
For example, I've owned a bunch of PCX shares for several months now. After last month's options expiration, I bought $20 puts (when the PPS was $22). I paid "something" for each contract - a very small amount compared to the cost of 100 shares - it doesn't really matter what.
Now, when I bought those options, the PPS was at about $22. Holding the puts capped my maximum loss at $2 per share. The PPS is now below $20, but the puts give me the ability to sell them at $20 regardless. At this point, it does not matter whether the price holds at $19 or falls to $10. My shares have a delta of 1, the puts have a delta of approximately 1 (because they are ITM), so no matter where the price swings between $0 and $20, I don't lose or gain any value on the combined position of the shares + puts.
You don't sell or execute a "protective" put unless you want to exit the position or you are rolling over to the next month's contract. Otherwise it's not a hedge anymore, it's speculation, and you might as well just acquire more shares or buy calls, treat it as a new position. It's like I said, I could have made money by selling the puts at the Thursday low, but then I'd have an unprotected position and that would run counter to the overall strategy.
In my case, I also sold a covered call when I bought the put, so the put was essentially free. Therefore, there really was no "decision" to make. It's a no-brainer, conservative trading strategy. Technically I could dispense with the long position entirely and just have an option spread, but I don't do collars every month, I just did this month because I saw the market as overvalued. In either case, the put is there to protect against sudden and unexpected downturns, like the one last week; it's expected to expire worthless, not be sold for a profit. If it's about to expire in the money, then you sell it and either roll over or sell the underlying stock.
So hopefully you see that there's not really much thinking involved with this. There are a lot of option strategies that do require a lot of thought and imply a high degree of risk; collars and protective puts aren't one of them. It's fire-and-forget, repeat once a month or once every few months if you expect low volatility. |
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| rabbitjoker |
| 13-05-10: Long on GCE @ $6.10. |
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| Nrg2Nfinit |
| ahhh good ol gce, i remember successfully shorting it at 3 dollars for some gains. Undervalued even at 6 dollars though.. its a good long hold and better valuation then wtn right now. |
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