Long & Short risks

[the pro]

Hi Guys

Looking for an answer to the following question;

Longs in spread betting have a finite risk they can only go to zero, assuming no stop. Yes -I know we should place stops!

Shorts, however do not afford us such luxury. i am putting together a spreadsheet to show worse case risk, IE; no stops.

Has anybody got an idea of what an approximate figure would be say for the FTSE 100 stocks and the FTSE 250 stocks. Doubling the entry value makes life easy, but have any stocks actually doubled overnight in these markets.

Thanks in anticipation of your constructive replies.

 

[yellowfloyd]

Hi Guys

Looking for an answer to the following question;

Longs in spread betting have a finite risk they can only go to zero, assuming no stop. Yes -I know we should place stops!

Shorts, however do not afford us such luxury. i am putting together a spreadsheet to show worse case risk, IE; no stops.

Has anybody got an idea of what an approximate figure would be say for the FTSE 100 stocks and the FTSE 250 stocks. Doubling the entry value makes life easy, but have any stocks actually doubled overnight in these markets.

Thanks in anticipation of your constructive replies.

I’m not sure a one-size-fits-all figure for risk is a good idea. High beta stocks (banks, miners) tend to move more than the market due to exposure to global growth sentiment. Low beta (pharma, tobacco) names tend to move less. However, some stocks within sectors just move around more than others. It really does come down to looking at stocks on a case-by-case scenario (grunt work). Factoring in a doubling may be safe but likely excessive, reducing your trade size and profit potential. It’s all about giving yourself sufficient breathing room, but not so much as to be counterproductive. Try something like ATR (Average True Range) for an idea of the volatility each sock has. Default is often 14 days, so change the settings to be more long-term if you want to be more cautious. Also, don’t forget timing. Are you trading around its results or peers’? Is there any major macro data due? This may mean you want to factor in more risk than usual. I hope this helps. Good luck

 

[the pro]

I’m not sure a one-size-fits-all figure for risk is a good idea. High beta stocks (banks, miners) tend to move more than the market due to exposure to global growth sentiment. Low beta (pharma, tobacco) names tend to move less. However, some stocks within sectors just move around more than others. It really does come down to looking at stocks on a case-by-case scenario (grunt work). Factoring in a doubling may be safe but likely excessive, reducing your trade size and profit potential. It’s all about giving yourself sufficient breathing room, but not so much as to be counterproductive. Try something like ATR (Average True Range) for an idea of the volatility each sock has. Default is often 14 days, so change the settings to be more long-term if you want to be more cautious. Also, don’t forget timing. Are you trading around its results or peers’? Is there any major macro data due? This may mean you want to factor in more risk than usual. I hope this helps. Good luck

Hi Yellowfloyd

Thanks for your detailed answer.

I do take into account volatility of the stock when working out position sizes and stops. Just need to know worst case scenario, but it doesn't look like it can be done for shorts, so I'll stick to a worst case of doubling.

Just like my spreadsheet to forewarn of where I am at any given time.

Many thanks

Good luck with your trading.

 

[CityMasterTrader]

Hi Guys

Looking for an answer to the following question;

Longs in spread betting have a finite risk they can only go to zero, assuming no stop. Yes -I know we should place stops!

Shorts, however do not afford us such luxury. i am putting together a spreadsheet to show worse case risk, IE; no stops.

Has anybody got an idea of what an approximate figure would be say for the FTSE 100 stocks and the FTSE 250 stocks. Doubling the entry value makes life easy, but have any stocks actually doubled overnight in these markets.

Thanks in anticipation of your constructive replies.

If you're shorting, the worst case scenario is limitless. There isn't a finite level.

I can thing of take-over approaches where a stock has risen 2.5 times overnight. I can also think of small-cap stocks that have risen ten fold in a fairly short space of time.

I think it's an impossible task you're setting yourself there. Even if you did find a maximum overnight move for FTSE 100 based on past data, you can't be sure it won't be broken.

 

[the pro]

If you're shorting, the worst case scenario is limitless. There isn't a finite level.

I can thing of take-over approaches where a stock has risen 2.5 times overnight. I can also think of small-cap stocks that have risen ten fold in a fairly short space of time.

I think it's an impossible task you're setting yourself there. Even if you did find a maximum overnight move for FTSE 100 based on past data, you can't be sure it won't be broken.

Hi City Master Trader

Thank you for your reply.

Are you saying you have observed a FTSE250 or FTSE 100 stock going from say £5 to £12.50 or the equivalent overnight?

it would appear that shorting as far as spreadbetting goes is a far riskier proposition than going long. I take it that it would be madness not to have a guaranteed stop on the short side at least with longs your potential loss is limited.

Would this be your view?

 

[CityMasterTrader]

Hi City Master Trader

Thank you for your reply.

Are you saying you have observed a FTSE250 or FTSE 100 stock going from say £5 to £12.50 or the equivalent overnight?

it would appear that shorting as far as spreadbetting goes is a far riskier proposition than going long. I take it that it would be madness not to have a guaranteed stop on the short side at least with longs your potential loss is limited.

Would this be your view?

It’s not a frequent occurrence, but it probably has happened. More to the point, it certainly can happen! A case in point, Aquantive was taken over by Microsoft for $6bn, the stock was valued at $2.8bn, by market cap, the day before.

Maybe I’m being pedantic now. I don’t think your assumptions are too far off. Just don’t want a fellow trader to get stung by a big surprise.

 

[the pro]

It’s not a frequent occurrence, but it probably has happened. More to the point, it certainly can happen! A case in point, Aquantive was taken over by Microsoft for $6bn, the stock was valued at $2.8bn, by market cap, the day before.

Maybe I’m being pedantic now. I don’t think your assumptions are too far off. Just don’t want a fellow trader to get stung by a big surprise.

Thanks for your helpful answers, It's the stinging that hurts, so just trying to be ultra careful.

Just checking AQNT price rose from $36 to $66 so less than 100% gain according to the piece a 85% premium on price.

The other thing, I only trend follow, and it looks to me that this stock would only have been on my Bull list anyway.

I suppose what I should have asked , do stocks in a short to medium term Bear trend double overnight.

Thanks again

 

[CityMasterTrader]

Thanks for your helpful answers, It's the stinging that hurts, so just trying to be ultra careful.

Just checking AQNT price rose from $36 to $66 so less than 100% gain according to the piece a 85% premium on price.

The other thing, I only trend follow, and it looks to me that this stock would only have been on my Bull list anyway.

I suppose what I should have asked , do stocks in a short to medium term Bear trend double overnight.

Thanks again

It’s possible, there’s no doubt about that.

Whether it’s a frequent occurrence, you’ll only find out by conducting a huge study of years of past data. I doubt anyone could answer your question honestly.

Good luck, and keep us posted!

 

[the pro]

It’s possible, there’s no doubt about that.

Whether it’s a frequent occurrence, you’ll only find out by conducting a huge study of years of past data. I doubt anyone could answer your question honestly.

Good luck, and keep us posted!

Thanks City Master Trader, thanks for the info, good to hear from you again