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> to obviate the risk of the market spikes you mention, have you
> considered trading options instead of the underlying? QQQ and OEX
> have sufficient liquidity, and, as you are no doubt aware, any long
> option comes with its own automatic stop built-in (the premium
> paid).
I've definitely considered it. I have very little experience in
options and I haven't been able to understand things well enough to
be comfortable with it. I.e. it's difficult to get sufficient data
on all the strikes to rigorously test how a system would have
performed with puts/calls instead of futures, what would the
entry/exit costs have been considering liquidity & slippage, things
like that.
I question your liquidity comment. When I've looked at it, QQQ and
OEX had decent liquidity on a daily level, but not on a moment-to-
moment basis.
I can't get Quote.com LiveCharts (my only source of live options
charts) to behave at the moment, but when I've looked in the past,
the MOST active options showed a volume of maybe 300-500 per hour on
the CBOE website. And when I checked them in a chart, I found there
were typically only 2-3 *trades* per hour, each of which was a large
block.
And that was for the most active strikes. What do you do if you
enter a trade on an active strike, then the market moves in your
direction for a few days? Your put or call is now much less active.
Seems to me the slippage would be horrific.
Also, the "money management stop" of the premium paid is not the only
concern I have with the minis. You also have to be careful about
getting stopped INTO a position you didn't want, and at a horribly
bad price. E.g. on 6/22 the NQ spiked 75 pts in a minute due to
rumors from the Mideast. I happened to have an short signal at 1740.
If I'd had a resting stop in Globex, I probably would have gotten
filled near the bottom of the spike at 1672. Instead, I waited for a
minute and got filled at 1740 like I wanted. (The trade still went
sour, but not as bad as it WOULD have if I'd been filled at 1672!! :-)
> BTW, I like your expression, "air pockets of liquidity"! Quite
> descriptive, and somewhat poetic, too.
Can't take credit for that one. I've heard others use it quite a few
times.
Gary
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