Add training workflow, datasets, and runbook
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282 Technical Analysis of Stock Trends
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Having correctly analyzed market trends, your action results in an increase in portfolio
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value from $418,000 to $429,375. You could have accomplished the same result by buying and
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selling bonds and stocks, but not without tax consequences and the attendant transaction
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headaches. The use of futures to accomplish your goals allowed you to implement your
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trading plan without disturbing your existing portfolio.
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Perspective
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Although there can be no argument about the importance of CBOT® DJIASM Index futures—
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they are markets of enormous usefulness and importance—there can also be no doubt the
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futures novice should thoroughly prepare himself before venturing into these pits. In such
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a highly leveraged environment, mistakes will be punished much more severely than an
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error in the stock market. By the same token, ignorance of this vital tool is the mark of an
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investor who is not serious about his portfolio, or who is less intense in his investment
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goals. “They” (the infamous “they”) use all the weapons at their disposal; so should “we.”
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Options on Dow Index futures
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The buyer of this instrument has the choice, or the right, to assume a position. It is his option
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to do so—unlike a futures contract in which he has an obligation once entered. There are
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two kinds of options: calls (the right to buy the underlying instrument) and puts (the right
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to sell). Also, options can be bought (long) or sold (short) like futures contracts.
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A long call option on Dow Index futures gives the buyer the right to buy one futures
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contract at a specified price which is called the “exercise” or “strike” price. A long put option
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12000
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11800
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11600
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11400
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11200
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11000
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10800
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10600
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10400
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10200
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1600
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1200
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800
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400
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11/1999 12/1999 00 2/2000
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/DI200006 LAST-Daily 02/24/2000
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Created with TradeStation www.TradeStation.com
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Figure 17.4 Dow–Jones Futures and Options. A put purchased at the arrow on the break would have
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protected patiently won gains over the previous 11 months. The increase in the value of the put can
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be seen as futures track declining Dow cash. A theoretical drill, but theoretical drills precede actual
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tactics in the market.
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