4 ms·

Max loss being 10% is absolutely not accurate at all in that scenario. Taking the company private would still be up to a shareholder vote and shareholders coul

by whatok 8y ago

Max loss being 10% is absolutely not accurate at all in that scenario. Taking the company private would still be up to a shareholder vote and shareholders could determine that the price offered was not sufficient. In that case, there are a lot of ways the stock could trade above the takeout price.

danso 8y ago
Isn't it possible to set the short order at a max limit to cut your losses? (this shows how little I know about having a trading account)
- whatok 8y ago
  This might help: https://www.investopedia.com/articles/active-trading/091813/which-order-use-stoploss-or-stoplimit-orders.asp https://www.investopedia.com/articles/active-trading/091813/... The problem with stops is that you run the risk of the price gapping up or down and your stop getting filled at a much different price than expected.
  - howard941 8y ago
    I'm an experienced trader in the sense that I've had only bad experiences trading. Thinking a stop loss order would help I (and the order) failed to account for one of those flash crashes that happen for no obvious reason other than to trigger execution of stopped orders.
    - wjnc 8y ago
      With leveraged products (like rolling turbos [1]), that risk is usually on the offering institution? I dabbled in those a few times when pretty sure (or full) of myself. There are no margin calls in turbos, you add leverage to your liking (x 2, x 5, x 10, ..) and you pay a hefty interest on your leverage (say 7%). Your exposure is exactly the price you bought for. [1] https://en.wikipedia.org/wiki/Turbo_(finance) https://en.wikipedia.org/wiki/Turbo_(finance)
      - howard941 8y ago
        Unfortunately I was long Kraft (the food co), completely unleveraged, and got taken out at a 15% loss thanks to a flash crash-induced stop loss. It taught me a lesson that only losing real money teaches.
- MichaelApproved 8y ago
  The only reliable way to limit losses would be using options.
- defen 8y ago
  Sell short and buy a corresponding (shares short / 100) number of call options at $420 strike (which, in theory, if Musk were telling the truth, should essentially be worthless but in practice will come with some amount of premium). That way you have a guaranteed exit at $420/share + option premium paid. You could reduce your option premium cost while slightly increasing your max loss if you went with $430 calls or whatever.
  - MichaelApproved 8y ago
    Why not just buy puts and simplify the trade?
    - defen 8y ago
      That could work too; without seeing the numbers it's hard to say. For example you might have a higher chance of losing your money due to theta decay depending on how far out you're buying. And the premium on the puts is going to be substantially higher than on the defensive calls unless you go significantly OTM.

by whatok 8y ago

danso 8y ago

Isn't it possible to set the short order at a max limit to cut your losses? (this shows how little I know about having a trading account)

whatok 8y ago
This might help: https://www.investopedia.com/articles/active-trading/091813/which-order-use-stoploss-or-stoplimit-orders.asp https://www.investopedia.com/articles/active-trading/091813/... The problem with stops is that you run the risk of the price gapping up or down and your stop getting filled at a much different price than expected.
- howard941 8y ago
  I'm an experienced trader in the sense that I've had only bad experiences trading. Thinking a stop loss order would help I (and the order) failed to account for one of those flash crashes that happen for no obvious reason other than to trigger execution of stopped orders.
  - wjnc 8y ago
    With leveraged products (like rolling turbos [1]), that risk is usually on the offering institution? I dabbled in those a few times when pretty sure (or full) of myself. There are no margin calls in turbos, you add leverage to your liking (x 2, x 5, x 10, ..) and you pay a hefty interest on your leverage (say 7%). Your exposure is exactly the price you bought for. [1] https://en.wikipedia.org/wiki/Turbo_(finance) https://en.wikipedia.org/wiki/Turbo_(finance)
    - howard941 8y ago
      Unfortunately I was long Kraft (the food co), completely unleveraged, and got taken out at a 15% loss thanks to a flash crash-induced stop loss. It taught me a lesson that only losing real money teaches.
MichaelApproved 8y ago
The only reliable way to limit losses would be using options.
defen 8y ago
Sell short and buy a corresponding (shares short / 100) number of call options at $420 strike (which, in theory, if Musk were telling the truth, should essentially be worthless but in practice will come with some amount of premium). That way you have a guaranteed exit at $420/share + option premium paid. You could reduce your option premium cost while slightly increasing your max loss if you went with $430 calls or whatever.
- MichaelApproved 8y ago
  Why not just buy puts and simplify the trade?
  - defen 8y ago
    That could work too; without seeing the numbers it's hard to say. For example you might have a higher chance of losing your money due to theta decay depending on how far out you're buying. And the premium on the puts is going to be substantially higher than on the defensive calls unless you go significantly OTM.