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The Option Trader’s Hedge Fund: A Business Framework for Trading Equity and Index Options by Mark Sebastian, Dennis A. Chen

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12. Lessons from the Trading Floor on Risk Management

Cash Is a Position

Cash is a position you can take. Being in cash has some serious advantages, yet many are afraid of the position. Table 12.1 shows two annual returns in which $10,000 traded in iron condors.

Table 12.1. Two Scenarios for Iron Condor Returns

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The net simple return on the data set was $700 or 7%, not bad at all.

Now examine this second data set. The net simple return on the data set was $1,300 or 13%, almost double.

The only difference between the two sets was in September. You decided to stay in cash. Believe it or not, you made more money not trading. You might know this urge ...

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