use Options instead of Stops

Quote from Steveyd:

Actually, it's more like a straddle, since you are buying two puts for every one contract you are long (ie ATM, delta=0.5).

I have looked into this method and even tried it once, more as a method to hedge my position if the futures exchange went down. The payoff can be positive in both directions if there is a big move within a short time frame. Otherwise Theta will eat your profits. Between Theta and the Bid/Ask spread slippage I don't think its viable as a stop loss alternative for short term trading with small profit targets.
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That's correct, the delta adjusted number of puts combined with the long futs is a long an adjusted long straddle, with unpaired number of legs. Eg. 10 futs, and you buy slightly OTM puts with delta .40, so buy 25 puts, which means 10 synthetic calls + 15 puts.
Trading long straddles is very hard. In the case of an expected strong move the drop in Vega after the strong move happened will also likely eat a lot of your profits. And in many markets the prices are skewedto the downside so a drop in futprice will also deteriorate the value of the total position more than expected.
You're paying insurance premium. The seller of the contract is not likely to bear your risk for free.

Ursa..
 
thanks for replies..

for now I will stick to stop order for day trading...
and concentrate on perfecting my entries.

one day this dog will bark on wall street :)
 
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