buying stocks vs. options for short term trading

[ironchef]

in long downtrends i do the same thing with puts but i stick with spy options only because i am comfortable with spy

Makes sense.

My struggle is to recognize when a long down trend is coming. I really have no ability to predict or recognize a long bull market, just happened to be trading mostly long since 2010. It is luck, not skill and I desperately try to learn enough to recognize and deal with the down market that will be coming.

You have better skills than I.

Regards,

 

[spindr0]

OK, so when do you know when to buy puts or inverse ETF or short equities and ETF? And when do you reverse and start to buy calls or ETF or long equities and ETF? If you do know, aren't you knowing the future?

You never "know" anything. If you buy something, it could be the top and you lose. If you short something, it could be the bottom and you lose. But if you stick your toe in the water and it works, try a foot. That's what transitioning means. I suppose you want something more technical (and useful) than that, eh? Well, it's not a simple answer.

You can't see a crash coming (1929, 1987) though some here have claimed that they can. However, a bear market is different and you have to be a bit oblivious not to recognize that something is happening when the market drops 50+ pct over 18 months (banks failing left and right, GM facing bankruptcy, investment banks collapsing, etc.). You'll see many market metrics deteriorating - economic indicators turn down, earnings announcement disappointments increase, analyst downgrades and earnings revisions increase, market leaders cease to lead, the VIX increases... all beginning long before the crisis becomes acute. When you decide to alter direction, you may very well sell at the bottom. You never "know".

Since I'm older and I have accumulated my nest egg, it's more important to me to keep it than to make it, though I'm not averse to making it . The market going up without me bothers me a lot less than it going down with me and if I'm wrong, since markets don't "melt up", I can always get back in. So OK, I might miss a bit of the upside and pay some taxes on closed positions but the 50+ pct hit isn't on my menu, well, not since 1987.

I was clever enough to get out of the way in 2000 but not experienced enough or brave enough to go short big time. In the fall of 2007, I saw a number of troubling metrics. I simply determined how much of the previous 6 years of gains I was willing to give up and I ran a mental trailing stop loss. That trigger hit and I was out of most of my long positions by 12/31/07. From there, I ran a long/short correlation portfolio for the next two years, biased more short than long. It paid off well.

Maybe I got lucky twice. It doesn't really matter to me whether it was luck (a blind squirrel finding an acorn) or skill. I was willing to be wrong but luckily, I wasn't. As an example of my frame of mind, I started a chain about two weeks ago, asking for index hedging suggestions for some appreciated portfolio positions that are reasonably correlated (a variable annuity with a near double and some other managed money). This time, rather than blow everything out with a mental trailing stop loss, I'm trying to figure out a viable way to keep some upside yet have a floor (a collar) so that even though it's unlikely, a crash is covered as well. And there it is again, willing to be wrong small but not willing to bite the dust big time.

Hope this helps. If not, "Look Out Below !!!"

 

[ironchef]

You never "know" anything. If you buy something, it could be the top and you lose. If you short something, it could be the bottom and you lose. But if you stick your toe in the water and it works, try a foot. That's what transitioning means. I suppose you want something more technical (and useful) than that, eh? Well, it's not a simple answer.

You can't see a crash coming (1929, 1987) though some here have claimed that they can. However, a bear market is different and you have to be a bit oblivious not to recognize that something is happening when the market drops 50+ pct over 18 months (banks failing left and right, GM facing bankruptcy, investment banks collapsing, etc.). You'll see many market metrics deteriorating - economic indicators turn down, earnings announcement disappointments increase, analyst downgrades and earnings revisions increase, market leaders cease to lead, the VIX increases... all beginning long before the crisis becomes acute. When you decide to alter direction, you may very well sell at the bottom. You never "know".

Since I'm older and I have accumulated my nest egg, it's more important to me to keep it than to make it, though I'm not averse to making it . The market going up without me bothers me a lot less than it going down with me and if I'm wrong, since markets don't "melt up", I can always get back in. So OK, I might miss a bit of the upside and pay some taxes on closed positions but the 50+ pct hit isn't on my menu, well, not since 1987.

I was clever enough to get out of the way in 2000 but not experienced enough or brave enough to go short big time. In the fall of 2007, I saw a number of troubling metrics. I simply determined how much of the previous 6 years of gains I was willing to give up and I ran a mental trailing stop loss. That trigger hit and I was out of most of my long positions by 12/31/07. From there, I ran a long/short correlation portfolio for the next two years, biased more short than long. It paid off well.

Maybe I got lucky twice. It doesn't really matter to me whether it was luck (a blind squirrel finding an acorn) or skill. I was willing to be wrong but luckily, I wasn't. As an example of my frame of mind, I started a chain about two weeks ago, asking for index hedging suggestions for some appreciated portfolio positions that are reasonably correlated (a variable annuity with a near double and some other managed money). This time, rather than blow everything out with a mental trailing stop loss, I'm trying to figure out a viable way to keep some upside yet have a floor (a collar) so that even though it's unlikely, a crash is covered as well. And there it is again, willing to be wrong small but not willing to bite the dust big time.

Hope this helps. If not, "Look Out Below !!!"

Thank you for taking the time to answer my questions. It is very helpful. I wasn't smart enough or lucky enough to avoid the 2000 and 2008 crashes so still have lots to learn. This time around, someone here convinced me to take some chips off the table. It was a wake up call and very much appreciated.

Going into 2018 I am going to try something different, maybe hedging with spreads, a collar, or start buying puts like spy guy said, etc. and experiment with different approaches.

Best wishes.

 

[spy guy]

Thank you for taking the time to answer my questions. It is very helpful. I wasn't smart enough or lucky enough to avoid the 2000 and 2008 crashes so still have lots to learn. This time around, someone here convinced me to take some chips off the table. It was a wake up call and very much appreciated.

Going into 2018 I am going to try something different, maybe hedging with spreads, a collar, or start buying puts like spy guy said, etc. and experiment with different approaches.

Best wishes.

all of us always have something to learn, we never know what the market will do tomorrow

 

[spindr0]

Thank you for taking the time to answer my questions. It is very helpful. I wasn't smart enough or lucky enough to avoid the 2000 and 2008 crashes so still have lots to learn. This time around, someone here convinced me to take some chips off the table. It was a wake up call and very much appreciated. Going into 2018 I am going to try something different, maybe hedging with spreads, a collar, or start buying puts like spy guy said, etc. and experiment with different approaches.

When I finished graduate school in 1978 and had a regular check coming in, I began investing into half a dozen DRIPs that offered a 5% discount on reinvested dividends and for some, 5% discount on new cash as well. Citibank, Chase and other beaten down Keating S&L crisis banks were really good deals then (mid 80's?).

After reading the 1st edition of McMillan's option book, I 'graduated' to covered calls. When I realized what synthetics were, I moved up to naked puts, rolling when possible and if not, taking assignment and later selling CCs. There were only monthly options then. On expiration Friday in October of '87, I did the usual rolling/selling. Monday the 19th was Black Monday (the crash) and other than my Bear Stearns CC, I ate every naked put and effectively purchased a sh*tload of stock since every short put was then not so nicely ITM. As for the BSC covered calls which expired ITM, things were so chaotic that following week that it took Paine Webber 8 days to figure out if I had been assigned or not.

The point of this personal history? Black Monday put risk management on my radar and made me start "to try something different, maybe hedging with spreads, a collar, or start buying puts ... and experiment with different approaches."

I'm not going to give you a line of sh*t about how wealthy options made me. Not even close. But it was a nice consistent flow of premium that augmented my income and made "getting there" easier... and at this point, keeping it.

Yes, all of us always have something to learn and that might make the difference in the next bear. Good luck with your exploration and Happy Holidays.