Replies to post #3377 on First Bitcoin Capital Corp (BITCF)

[Alex Chory]

Managing Risk: Stops versus Options

Every trade has an element of a risk - there is no "sure thing". If there were, everyone would do it and be independently wealthy. What sets traders apart from the gamblers is how they deal with the risk of the trade or bet.



There are few ways to go about it and today we are going to look at the two of them: placing stops and buying insurance or options as it is called in the financial lingo.
Placing stops is a fairly common and simple way to manage the risk. Once the trade has been entered the trader places a stop order and is done with the risk management part. Now, this sounds simple enough. Why bother with anything else? Let's see how would stops actually manage the risk. Let us look at following hypothetical trade: buy at 50, with target at 60 and getting out if the price drops below 47. Simple enough, current price is 50 so we enter and place a stop order at 47. Next morning it opens at 45, the stop is triggered and you are out of the position with 5 point loss - 2 more than was planned. To make matters worse, despite of the morning gap lower, it rallies back to 50 within first hour of trading and then hits the target of 60 within next 2 days. Surely any trader would feel cheated. The outlined scenario may seem extreme, but I am sure there will be quite a few traders nodding their heads, while reading it. Lets recap the risk management by placing stops:
It is simple.
It is easy.
It is free.
The loss can be higher, sometimes substantially, then initially planned.
If hit, it deprives the possibility of a successful recovery.

Next, let's look at the other risk management strategy - buying a protective option (insurance). Same trade: buy at 50 with a target of 60 and get out if the price hits 47. Instead of placing a stop we are going to buy a put option with a strike of 47 - this means, if the price drops below 47 then we have a right to exercise our option and sell at 47. There is little more involved here, however, in the interest of simplicity we stop here. Following the same scenario with a gap lower and successful recovery, our trade would do just fine - upon gap we sit tight knowing that if it continues lower then we are just going to exercise the option. As the price recovers and hits the target the exit is made and 10 point profit it reaped - or is it? We spent something on the insurance, didn't we? Option prices are determined by the time left, volatility and the price of the underlying. Since we bought the put with a strike of 47, when the price of underlying was 50 and upon hitting the target the underlying is 60 there is certainly sizable erosion in the price of the option. Lets recap the risk management by buying options:
It is more complex - requires to deal with two securities (underlying and option) entry and exit.
It can be fairly expensive depending on various factors, like volatility and time.
The loss is absolutely defined - can't loose more then the price of the option and the difference between buying price and option strike price even if something really drastic occurs, be it terrorists or nature.
Recovery from the adverse situation is conceivable - meaning one doesn't have to be absolutely correct about the price movement within time.

Prior outlines two risk management strategies with their respective pros and cons - so which one is for you - or is it maybe the question which would be more appropriate for a particular situation? In our view, for intraday trades, utilizing stops is quite fine. Due to the short timeframe stops are more convenient. On the other hand for a longer term trades protective options might be powerful tool in limiting the loss and allowing successful recovery.

http://www.theseustrading.com/Managing_Risk.html

[Alex Chory]

I'll say this much, I think Original fred here is

right on with his theory,
once a scam always a scam, I remember another
one from raging bull that I was in, Epicus Communications,
one fellow (I can't remember his alias) on the board constantly
posted negative information on the compnay and the reason
for the convertible debentures. He was aggravating as hell,
but in the end, Epicus went bankrupt, another loser to the
notch, all just for what its worth...

good luck to you
,,,,,$$$$$

[Alex Chory]

old Japanese proverb say


"he who is well prepared has won half the battle"


think about it

,,,,,$$$$$

[Alex Chory]

oh yeah

its nice to see you became an expertovernight in 43-101

you missed a dot

,,,,,$$$$$

[frin90rz]

Oops, "qualified person", I meant to write.

If there's anyone left who is interested in making money on GPGD, the point I am trying to make is that a 43-101 is a Canadian reporting standard, and not a mining standard. Granted, GPGD didn't use Canadian National Instrument 43-101 language in their public relations notices, and they may or may not be able to file a technical report with Canadian National Instrument 43-101 language.

Whatever the case may be, a lack of 43-101 language, in and of itself, does not necessarily imply anything about the lack of quality of an assay result. There are other possible explanations for the discrepancy.

Some people have effectively used general ignorance and confusion on this issue to bash this stock. Congrats to them if they succeed, shame on the rest of you for letting them.