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  • Dani

Hedging Against your Broker

Today, 2 hours before the session begin, my trading platform was disconnected. It happens sometimes, but not for so long (I'm usually very happy with my broker).

As the trading started, I couldn't get into my account and trade.

It is good that I mentally rehearsed such an event. I didn't know the reason for that, but whether its hacking attack or system failure, it didn't matter. I know that it is not good for the stock, and maybe they will get sued by clients that lost money today due to the system problems.

My plan for these events is to buy Puts on my broker, and do that at another account in another broker, because it doesn't help you to buy protection from Lehman Brothers when it goes to zero.

Add to that the fact that it's trading at resistance level, it's even more attractive trade.

So for example, let's look at buying Put50 for 11 days at 0.3$:

First, we know that buying 100 puts which will cost us 3K will give us protection in case of bankruptcy, for 500K account (if the stock will go to zero the put will be 50$).

Second, we can see that it is not unreasonable to believe that the stock can go down to 47$ (previous support) in the following days, after such an event (and in this case the puts will be worth 30K - or 3$ per put).

Either way, I am going to sleep good tonight.

What about you?


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