Disaster Planning

This is a discussion on Disaster Planning within the Trading Systems forums, part of the Methods category; Frugi, The S&P Futures on 9/11 were around 1102 falling to 1095 after the first plane strike then falling to ...

Reply
 
LinkBack Thread Tools Search this Thread
Old Jan 15, 2005, 9:34pm   #16
Joined Oct 2003
Frugi, The S&P Futures on 9/11 were around 1102 falling to 1095 after the first plane strike then falling to 1070 after the second after which they stabilised at around 1075 to 1080.

If one was not able to get out the spread betters would still hopefully be up and running and one may be able to hedge. I'm not sure if they continued a 'grey' market in US indecies on/after 9/11.
Tuffty is offline   Reply With Quote
Old Jan 15, 2005, 9:44pm   #17
Joined Jul 2003
TheBramble started this thread Good points all.

I must admit, I was only thinking of a 'major' disaster - not a 'local' one (PC outage, ISP failure etc.). Great Tuffty, something else to worry about!

I have redundancy across all my kit and any one PC can handle one (or all ) of the others' workload.

I don't have ISP BB outage cover - which is crazy really - I'll look into a backup/alternative. Thanks Tuffty.

I have two on-line brokers so if one platform goes down and things get 'serious' I could hedge with the other.

I have direct phone line contact for both brokers.

I think that covers local and broker outage.

As for serious disasters (and although we all use "9/11" as an unexpected, sudden and negative impact on the markets - just take a look at the trend at that time and levels hit since) of worldwide dimension or significance, does anyone use any insurance - I mean REAL insurance company insurance? Can we get cover for this type of situation?

Mr. Charts mentions deep OTM PUTS (but seems unwilling to disclose his approach on these boards - which is a shame) and others have mentioned a pair trading approach.

Fot my part (as mentioned in the spawning thread) I work on a basis of having no more than 10% of my liquid assets in the market at any one time.

That way - if I get hit - and totally hit - I still can get back it at only slightly reduced levels on recommencing trading activities.

Taking a hypothetical $1M assets position and using 10% you end up with active trading capital of $100K. Lose it all in a catastrophic event (total loss being extremely unlikely in reality) and you get to start again with $90K active trading capital. For me, psychologically - no problem.

For someone working on a 50% basis - they go from $100K to $50K - i.e. half the size they were previously trading. It may be that because I've suffered this a few times that I'm so clear about not wanting it to happen again.

(It has to be said, all of my '9/11's were of my own making - on a day basis and even in one instance on just one trade!!!).

What level of exposure do other traders assume?

If we work with a definition of liquid assets as - cash, and other assets that can quickly be converted to cash - what percentage of this aspect of your finances are you willing to expose through your trading activities?

(My personal sub-definition of liquid assets convertibility is something that I can turn into cash by phone or fax or email within 24 hours) - excludes jewellery, precious metals [physical], antiques, art etc.)

This of course does not include property or any other 'hard' investments from which you derive capital growth or income.

As mentioned before, I personally will utilise just 10% in trading. The other 90% are in relatively low-return and very low-risk holdings, but with rapid access.

On what basis would you consider increasing the percentage committed to trading?
TheBramble is offline   Reply With Quote
Old Jan 16, 2005, 2:12am   #18
Joined Jul 2001
Quote:
Originally Posted by TheBramble
Good points all.

I must admit, I was only thinking of a 'major' disaster - not a 'local' one (PC outage, ISP failure etc.). Great Tuffty, something else to worry about!

I have redundancy across all my kit and any one PC can handle one (or all ) of the others' workload.

I don't have ISP BB outage cover - which is crazy really - I'll look into a backup/alternative. Thanks Tuffty.

I have two on-line brokers so if one platform goes down and things get 'serious' I could hedge with the other.

I have direct phone line contact for both brokers.

I think that covers local and broker outage.

As for serious disasters (and although we all use "9/11" as an unexpected, sudden and negative impact on the markets - just take a look at the trend at that time and levels hit since) of worldwide dimension or significance, does anyone use any insurance - I mean REAL insurance company insurance? Can we get cover for this type of situation?

Mr. Charts mentions deep OTM PUTS (but seems unwilling to disclose his approach on these boards - which is a shame) and others have mentioned a pair trading approach.

Fot my part (as mentioned in the spawning thread) I work on a basis of having no more than 10% of my liquid assets in the market at any one time.

That way - if I get hit - and totally hit - I still can get back it at only slightly reduced levels on recommencing trading activities.

Taking a hypothetical $1M assets position and using 10% you end up with active trading capital of $100K. Lose it all in a catastrophic event (total loss being extremely unlikely in reality) and you get to start again with $90K active trading capital. For me, psychologically - no problem.

For someone working on a 50% basis - they go from $100K to $50K - i.e. half the size they were previously trading. It may be that because I've suffered this a few times that I'm so clear about not wanting it to happen again.

(It has to be said, all of my '9/11's were of my own making - on a day basis and even in one instance on just one trade!!!).

What level of exposure do other traders assume?

If we work with a definition of liquid assets as - cash, and other assets that can quickly be converted to cash - what percentage of this aspect of your finances are you willing to expose through your trading activities?

(My personal sub-definition of liquid assets convertibility is something that I can turn into cash by phone or fax or email within 24 hours) - excludes jewellery, precious metals [physical], antiques, art etc.)

This of course does not include property or any other 'hard' investments from which you derive capital growth or income.

As mentioned before, I personally will utilise just 10% in trading. The other 90% are in relatively low-return and very low-risk holdings, but with rapid access.

On what basis would you consider increasing the percentage committed to trading?
Tony/Chaps I can not recall the article precisely, I think it was in the Sunday times. It was an interview with a top Oxbridge Professor who educated the " Next Captain's in Industry"

He was asked what would happen to the chaps who flunked there final year and dropped out of the course. His Answer (loosely, it was a few years ago) " They would probably end up Interviewing the chaps who finished the course"

By mentioning this I am not advocating a total gung ho attitude, I would just like us not to be so restricted to what is a very risky business, that we become so aware of every total risk including West Brom winning the Premiership, that it would stiffle the Entrepreneurial Spirit that drives great people forward.

Someone mentioned once un-learning, IMHO there might be something to this.
The Purest might call it luck, driving around in there Volvos.

Truth is Entrepreneur's do take chances and do succeed.

Risk management, Yes 100% but lets not kill our flare and ingenuity
Gardan is offline   Reply With Quote
Old Jan 16, 2005, 2:35am   #19
Joined Jul 2001
Re the other thread

Brumbles, Re my post 56 on the other thread, you may of missed it because it had reference to yourself and a.n other. It was an important question for me, so if you get a mo?????

Thanks in advance Tony
Gardan is offline   Reply With Quote
Old Jan 16, 2005, 9:06pm   #20
Joined Oct 2003
Mr Bramble asked "What level of exposure do other traders assume?"

One where if a catastrophe/disaster should hit any position (or positions if they are correlated) it would not alter my life-style.
Tuffty is offline   Reply With Quote
Old Jan 16, 2005, 9:29pm   #21
 
Salty Gibbon's Avatar
Joined Aug 2003
You're a paper trader then are you Tufty ?

Sorry, couldn't resist.
Salty Gibbon is offline   Reply With Quote
Old Jan 16, 2005, 10:12pm   #22
 
frugi's Avatar
Joined Mar 2003
I'm liking the honesty on this thread.

Further information for Mr Brembo (marvel at the incredible stopping power!) -

$ risk, chez Frugi: A standard max loss of 1% per trade (entry +/- stop) and a further max of 3% per day (walk away if I've been unlucky or tending towards idiocy/revenge/gambling etc.)

Target 1% per day, reality 0.5%

An unmitigated disaster scenario of 500 Dow points lost with 3 contracts (the max I will hold in my grubby paws, for the moment) = $7.5k, about a third of capital.

But, should the faeces really fly thro' the fan, there is always the option to take this 33% (or more) swan dive out of the house by way of partial mortgage. Unwelcome of course, but possible, although the money would then be s bit scared, I grant you.

Currently my income is tiny but so are my outgoings, which helps the fear factor.
frugi is offline   Reply With Quote
Old Jan 17, 2005, 12:37am   #23
 
zzaxx99's Avatar
Joined Oct 2001
Quote:
Originally Posted by TheBramble
Good points all.

I have redundancy across all my kit and any one PC can handle one (or all ) of the others' workload.

I don't have ISP BB outage cover - which is crazy really - I'll look into a backup/alternative. Thanks Tuffty.

Difficult to get really resilient ISP coverage - local loop is likely to be common to all dial up and broadband connections regardless of ISP, and an awful lot of them will have common infrastructure - eg at the networking house, the name of which I can't remember, where there is scads of ISP kit.

Also, it will take careful research to ensure that the ISPs you choose are not both resellers of the same higher level capacity provider.

However, one via cable (NTL or Telewest), 1 via broadband of BT infrastructure should do the trick, though it does mean that you're at the mercy of the cable providers as ISP - and NTL are godawful at everything.
zzaxx99 is offline   Reply With Quote
Old Jan 17, 2005, 10:00am   #24
Joined Oct 2003
That cheeky poster Salty said "You're a paper trader then are you Tufty ?"

I've always managed my overall risk by the following idea:

"If a catastrophe/disaster should hit any position (or positions if they are correlated) it would not alter my life-style."

This hasn't stoppped me in the past doing silly things with my trading pot like 90% on one trade or loosing half of it. This wreckless behaviour with my trading pot was a long time ago. I was aware of the risks, and it was all spare cash, and I was in full time work so it couldn't affect my daily life in any way.

Now days my individual position risk is similar to what's been mentioned on the other thread (less than 1% per trade).

Last edited by Tuffty; Jan 17, 2005 at 6:13pm.
Tuffty is offline   Reply With Quote
Old Jan 17, 2005, 10:25am   #25
Joined Oct 2003
My guess is that the majority of 'buy-to-let' investors don't ever consider what would happen if it goes wrong. With a geared investment, one asset class that can be very illiquid, they have put themselves in a position where it is possible that they may find their life-styles changing considerably.
Tuffty is offline   Reply With Quote
Old Jan 17, 2005, 6:02pm   #26
 
RogerM's Avatar
Joined Mar 2001
The original question was about the use of a long put to give some crash protection. As an example, using the FTSE (and the principle is exactly the same with the S&P) you could buy a March 4575 put for 18 (i.e. £180 per contract) which simulates exposure to £45,750 in the FTSE. Those who have read my previous posts will know that I am allergic to using my own money to buy an option, so you could sell 2 x March 5025 calls for 12 each, giving you a net +6 to cover commissions etc. This gives cover for any crash below 4525, and in this event Implied Volatility would rise smartish and increase the value of the long puts considerably - particularly if there was a reasonable time left to run. There would be no profit other than the +6 credit on expiry between 4575 and 5025. Main drawback would be a sustained rally thru 5025, above which you lose £20 per point if left uncovered. This is a 1 x 2 short split strike synthetic.

An alternative could be a ratio backspread. Say, sell 1 x April 4825 put for 85, and buy 2 x April 4625 puts for 38. This gives a net credit of +9. If expiry takes place above 4825, then all expire worthless and you keep the net credit. Between 4825 and 4625 you lose on the short 4825 put but without gaining on the long 4625 puts (at expiry) giving a max loss at 4625 at expiry of 200 points (£2000). Below 4625 the long puts go into the money and overall will show a profit below 4425 at expiry. In practise a sharp fall immediately would show a profit at all levels because the increase in IV would be in your favour because you are net long 1x put.

The synthetic theoretically could lose you more because there is unlimited exposure above 5025 - and at 2:1. However, the FTSE would have to rally above 5125 by April expiry to exceed the maximum theoretical loss on the backspread, and I think there is more likelihood of March expiry being close to 4625 than the April expiry being above 5125.

I guess you need to decide which risk you most want to take!
__________________
regards,

Roger(M)

http://www.wehanghere.com

Last edited by RogerM; Jan 17, 2005 at 6:11pm.
RogerM is offline   Reply With Quote
Old Jan 25, 2005, 3:11pm   #27
Joined Oct 2003
I shouldn't have watched the Equinox Channel 4 TV program last night about Tsunami's.

Scientists are worried about some hugh mountain in the Canaries that may fall into the sea. It'll produce a Tsunami of up to 20m high on the east coast of the US. On the UK's south coast it'll 'only' be 7 to 10m.

Build that into your disaster planning!!!
Tuffty is offline   Reply With Quote
Old Jan 26, 2005, 12:13am   #28
 
JumpOff's Avatar
Joined Aug 2004
Using options to hedge a futures scalping strategy?

Here's a thread I started about this late last summer in the options area of the forums:
http://www.trade2win.com/boards/futures-options/11793-using-options-hedge-futures-scalping-strategy.html

Other than some of the stupid things I said about thinking I'd like to scalp options, I still think the bulk of it was on topic. That Anley is and oracle when it comes to equities!

Since writing that thread, I've come to realize that it's silly to try to limit survivable losses. It would be like having homeowner's insurance with a $20 deductible. Right. You have no risk, but your insurance premiums are more than your mortgage payments - and you can't afford the house anymore!

That said, the idea of purchasing a deep out of the put is still a part of my trading plan. I could start again if I lost my 70% of my pot, but I don't want any margin calls from my broker, saying I owe them 3 times the value of my house.
(Can you spell d.i.v.o.r.c.e. and p.r.i.s.o.n. ?)

This strategy really makes sense for someone who is using leverage/gearing in a profitable tested plan. It allows you maximum gain, and limits your downside so that you may live to trade another day.
JO
JumpOff is offline   Reply With Quote
Reply

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Similar Threads
Thread Thread Starter Forum Replies Last Post
Please help the affected families to overcome the Tsunami disaster clylbw The Foyer 17 Dec 31, 2004 9:00pm
Trading, planning for the future, pensions. JTrader Psychology, Risk & Money Management 10 Sep 4, 2004 2:20pm

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)