Downside protection, page-13

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slashj

330 Posts.

13/03/15

14:06

Post #: 14909740
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Originally posted by oakeyflat ↑

Hi slash, the more I look into it the more these warrants seem to be effective as a vehicle for leverage rather than for insurance. They provide almost the same protection as a basic stop-loss order at a fixed trigger price - except that the trigger prices is set by citi, whereas with a stop-loss order I can name my trigger price. The one advantage the warrant has is in the case where the price gaps down past the stop-loss price, where the warrant effectively gets you out at the stop-loss price whereas you stop-loss order will either not execute or will sell you out at the opening price depending on how you set it. I never use stop-loss orders either.

I have looked at CFDs before but haven't gone to the trouble of setting them up on my SMSF. In the end, I think they also are best for leverage rather than insurance. I can't actually figure a way to use either product to give me better downside protection than simply reducing my holding of the base shares.

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The downside risk here is that it will gap down substantially.
It's quite difficult to risk manage with 2 Long instruments.. that's what Options and CFDs are designed for - you can write puts and shorts to hedge against short term price fluctuations while protecting long term gains. Otherwise, it's just gambling.

SRX Price at posting: $39.18 Sentiment: Hold Disclosure: Held
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Downside protection, page-13

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