Comments on: Neutral Strategy Trading

By: Today’s economy media pack – 2009.12.04 | BrighterLife.ca

Today’s economy media pack – 2009.12.04 | BrighterLife.ca — Fri, 16 Dec 2011 16:18:21 +0000

[...] The Financial Blogger. Neutral strategy trading. “As some of you may already know if you are readers of IntelligentSpeculator, I rarely buy a simple stock. I prefer to do pair trading and almost all of my trades this year have been just that.” [...]

By: The Financial Blogger » Blog Archive » Long/short Trades Part #2

The Financial Blogger » Blog Archive » Long/short Trades Part #2 — Thu, 10 Dec 2009 10:13:33 +0000

[...] week, I explained briefly why I personally like doing long/short trades rather than simply buying and being net long. There are advantages to both and I personally do use [...]

By: IS

IS — Wed, 09 Dec 2009 03:08:48 +0000

@Dave – Actually, in theory you might be right but in my opinion, this strategy is very different in many ways

The most important is that I personally try to avoid trading options. They are a lot more complex than most realize. When buying options, you are actually taking a position on the stock but also getting exposure on its volatility (vega) and time to maturity of the options (theta)… so the trade becomes something completely different. Buying options means buying volatility…

You do get more leverage but you pay it dearly…

RIMM trades at 61$ right now.. a 60$ call (expiring in Jan 2011) would cost 13$… so to make money on that trade, the stock needs to move to at least 73$…

A put on AAPL at 190$ (its current price) is worth 31$! So I would need the stock to lose 31$…

So to break even on this trade, I would need RIMM to move to 73$ and AAPL to go down to 159$…. my long/short trade might have more downside risk but making a profit is a lot realist in my opinion…

Thoughts?

By: Dave

Dave — Tue, 08 Dec 2009 00:14:02 +0000

Why don’t you buy a call on RIMM and a put on AAPL? It will limit your loss scenario and increase your upside if you’re right. Again, not a beginner strategy.

Dave

By: The Financial Blogger

The Financial Blogger — Fri, 04 Dec 2009 11:37:25 +0000

I would say that this trading strategy is not for a beginner

but you are right, you may increase you risk if you are “wrong” on both stocks!

By: Jerry Hung

Jerry Hung — Thu, 03 Dec 2009 20:27:20 +0000

I am not sure if it’s really THAT beneficial, but it’s interesting nonetheless

If RIM drops (=loss on the long), and AAPL gains (=loss on the short), isn’t that double loss? maybe I’m thinking wrong here

I prefer the less-interesting-but-still-complex options to reduce the cost (e.g. buy RIM, write call/put options)

It really depends on the person’s investing style, I’m more for Buffett’s hold-forever, but options give me some trading income flexibility without actual buying