Quote from apple_sauce:
<<< But what astonishes even more are the stupid examples and a premise PM set up ie. a 250k assignment in a 100k acc. (his example.....(65*4000) in order to avoid closing out the spread trade .
Whose to say when a stock is going down it will not continue to drop longer than you are funded .
You know Putz when you wake up and see a gap down on your screen and hang in there till experation your puny call premiums are goin to make you whole??>>>
I gave examples of strikes from $30 - $70. As those are the general range of strikes Danshirley sets up spreads on.
Oddly enough, you missed the point of your own statement when you stated.... "Whose to say when a stock is going down it will not continue to drop longer than you are funded."
That being, Dan can't even afford to fund 90% of his trades, even at the strikes he selected.... let alone if they drop.
The point being,.... Dan is deprived of even having the CHOICE of buying 90% of his stocks, even if he wanted to give them a chance to recover. He is FORCED to sell for a loss, even if his stocks dip just a couple of pennies below his strike.
But the truth is, he is unlikely to ever let his stocks even get close to his strikes, before closing down the trade for a loss.
He has to, because he is on MASSIVE LEVERAGE,.... even if he is not aware of it.
Because of that massive leverage, he has lost the ability to CHOOSE.
He can no longer CHOOSE, whether to buy his stocks or close for a loss. He MUST close for a loss.
And that was the essense of my discussion.
That because of the MASSIVE leverage spread traders use, they lose the ability to "even consider" any alternatives to closing for a loss.
I simply used the hypothetical example of a $100,000 account and strikes of $30 - $70 to show the MASSIVE leverage they might be on via a spread strategy.
In the examples I used of investing $20,000 equally distributed into those 5 spreads, the cost of buying them all vs closing for a loss, was ONE MILLION DOLLARS. But the account was only worth $100,000!
You can distribute the funds differently for a slightly higher or lower cash risk,.... but the danger, the inability to choose, the massive leverage, the being forced to close for a loss, the risk of having your account wiped out if you don't close early for a loss, and so on, is still the same. Really makes no difference if your risk is $800,000 or $1,200,000, vs the million of my equal distribution of the funds.
The point remains the same.
Frankly, I'm disappointed that you would enourage Dan to continue investing in a strategy, whose risks he does not fully understand.
He has stated a number of times over the past number of weeks, that there is no leverage used with spreads. Hence the reason he stated that he does not keep a cash cushion. His goal is to be 100% invested.
I am not saying he should not use a spread strategy. I use it myself.
I'm saying don't use it if you don't understand it's risks.
Anyway, I am done with this issue. And I am done with Dan.
Hopefully you will still be there for him when he needs a loan,... as that day will surely come, when he must make the decision of either being wiped out, or coming up with 10 times more cash than he has.
Final point. I used 5 stocks in my example. Same issue whether you use 5 stocks or 25 stocks, as you are still using the entire $100,000.
<<< But what astonishes even more are the stupid examples and a premise PM set up ie. a 250k assignment in a 100k acc. (his example.....(65*4000) in order to avoid closing out the spread trade .
Whose to say when a stock is going down it will not continue to drop longer than you are funded .
You know Putz when you wake up and see a gap down on your screen and hang in there till experation your puny call premiums are goin to make you whole??>>>
I gave examples of strikes from $30 - $70. As those are the general range of strikes Danshirley sets up spreads on.
Oddly enough, you missed the point of your own statement when you stated.... "Whose to say when a stock is going down it will not continue to drop longer than you are funded."
That being, Dan can't even afford to fund 90% of his trades, even at the strikes he selected.... let alone if they drop.
The point being,.... Dan is deprived of even having the CHOICE of buying 90% of his stocks, even if he wanted to give them a chance to recover. He is FORCED to sell for a loss, even if his stocks dip just a couple of pennies below his strike.
But the truth is, he is unlikely to ever let his stocks even get close to his strikes, before closing down the trade for a loss.
He has to, because he is on MASSIVE LEVERAGE,.... even if he is not aware of it.
Because of that massive leverage, he has lost the ability to CHOOSE.
He can no longer CHOOSE, whether to buy his stocks or close for a loss. He MUST close for a loss.
And that was the essense of my discussion.
That because of the MASSIVE leverage spread traders use, they lose the ability to "even consider" any alternatives to closing for a loss.
I simply used the hypothetical example of a $100,000 account and strikes of $30 - $70 to show the MASSIVE leverage they might be on via a spread strategy.
In the examples I used of investing $20,000 equally distributed into those 5 spreads, the cost of buying them all vs closing for a loss, was ONE MILLION DOLLARS. But the account was only worth $100,000!
You can distribute the funds differently for a slightly higher or lower cash risk,.... but the danger, the inability to choose, the massive leverage, the being forced to close for a loss, the risk of having your account wiped out if you don't close early for a loss, and so on, is still the same. Really makes no difference if your risk is $800,000 or $1,200,000, vs the million of my equal distribution of the funds.
The point remains the same.
Frankly, I'm disappointed that you would enourage Dan to continue investing in a strategy, whose risks he does not fully understand.
He has stated a number of times over the past number of weeks, that there is no leverage used with spreads. Hence the reason he stated that he does not keep a cash cushion. His goal is to be 100% invested.
I am not saying he should not use a spread strategy. I use it myself.
I'm saying don't use it if you don't understand it's risks.
Anyway, I am done with this issue. And I am done with Dan.
Hopefully you will still be there for him when he needs a loan,... as that day will surely come, when he must make the decision of either being wiped out, or coming up with 10 times more cash than he has.
Final point. I used 5 stocks in my example. Same issue whether you use 5 stocks or 25 stocks, as you are still using the entire $100,000.
