Buy QQQQ puts

Quote from NoWorries:

I expect many times the options will expire worthless, and a few times they will expire ITM for a large profit.
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That is what my concern too to buy the out-of-money option. So what I am thinking is to buy in-money option. I look the in-money option, say $47 put, the time value is negative! That means you didn't pay any thing on time! So the whole market volatile is reflected in the option price. That looks what I want.

As a conclusion, my thinking is the opposite. Not to buy the out-of-money option, on the contrary, buy the in-money option. Then the option will not expire worthless. IS THAT TRUE?
 
Quote from tonyzhou:

That is what my concern too to buy the out-of-money option.
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If you want to _insure_ this shouldn't be a concern. Insurance means you make steady payments every month (or year) that will protect you against one or two (or possibly none...) disasters.
 
Quote from NoWorries:

If you want to _insure_ this shouldn't be a concern. Insurance means you make steady payments every month (or year) that will protect you against one or two (or possibly none...) disasters.
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But isn't that if buy in-the-money option, you are not only insured for big disaster, but also get money back for small market down?
 
hi tony

I`m also interested in protecting my long trading capital against a down turn.
It`s actually amazing that so little is written about it and nobody gives a real example of how to do it.
At the most its all talk talk talk.

We all protect our assets: insurance on the house, car etc.

I suspect hardly anybody in here does any insurance on their trading capital.

I was also thinking about hedging with index puts, but what about placing a stop buy order only (if that is possible) that gets triggered by a drop in the market.
In that way you dont have to spend any capital on a put but only have enough deposit for that stop buy order in your account.

anybody that can point me to an article that gives an example how to protect ones capital?

thanks
 
Quote from tonyzhou:

That is what my concern too to buy the out-of-money option. So what I am thinking is to buy in-money option. I look the in-money option, say $47 put, the time value is negative! That means you didn't pay any thing on time! So the whole market volatile is reflected in the option price. That looks what I want.

As a conclusion, my thinking is the opposite. Not to buy the out-of-money option, on the contrary, buy the in-money option. Then the option will not expire worthless. IS THAT TRUE?
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Buying an itm put to protect your long stock position gives you a synthetic long otm call. An otm call only makes money if the underlying goes up significantly and no adverse movement in iv occurs! You guys should really read up on synthetics so you'll understand what your actual positions are. Start off with Charles Cottle and S Natenberg's books.
db
 
Quote from tonyzhou:

But isn't that if buy in-the-money option, you are not only insured for big disaster, but also get money back for small market down?
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Yes, you are insured against disaster but you lose money if there is a downturn - you lose the premium you paid for your long itm put. Read my earlier post above.
db
 
hi daddy.

thanks for your contribution.



those books you`re writing up about, will they explain a protection set-up for a market crash?

thanks daddy
 
What I did right now is to buy QQQQ in-money put for the next month. In action.

For example, if the qqqq current price is $44 at April 1, I will buy $46 put for May. And at May-1, I will sell April's put and buy June's put.

So the insurance is about 5% of my total money, say I have $10000, I buy those put for about $500. All I will lost is $500 if
the market is up heavyly, but that is less possible than the heavyly drop sunddenly. Since my own stock portfolio can beat market quiet a bit, so I can afford those cost for the option now. I have never experieced a heavy drop in the recent months while I buy the put, so I cannot tell if it really works for crash such as 1987. But this stratedy runs well in the recent 3% drop day. In that day, my QQQQ put earn is 3% but my portfolio's drop is about 2%, so actually I have 1% gain that day and give me plenty time to consider what I need to do.

So I think this proection is good, hope even if it works when market down 20% in 1 day like 1987. I think when the crash is coming, it should give me time to reduce the position, help me to liquidate all the position in the insane situation. As I think, when the markte is insane and I cannot drive it, I 'd better stop. Like never speeding driving.
 
Quote from tonyzhou:

Hi, runningman,

I looked at QID. But it looks it is not suitable for me because it uses too much buying power (50%?). I am thinking less buying power to hedge, say 5% of the account. If I misunderstand, please let me know. Thanks.
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Futures (NQ) can be used to hedge without using up too much buying power
 
hey tony,

I`m glad you found your ideal way to hedge your portfolio.

Wouldn`t be better to have a stop loss on your shares in case the market tanks?
 
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