The long and short riddle of the century is
Who wants to tackle this riddle?
Hi Bryan, thank you for your amazing blog! I have also taken the PTM course. However, there’s a flaw I noticed that I would like to ask you about. Let’s say long X is $100 and short Y is $100. This gives us a 100/100 = Ratio 1.0, and let’s say a 30% Stop-Loss (SL) would be at 0.7. BUT!!! If long goes down to 70 and our short remains at the same price at 100, the ratio would be 70/100 = 0.7 so our SL would be triggered and everything is fine. Now to the flaw: if our long stays at the same price but our short goes against us to 130, it would be 100/130 = 0.77 which means our SL would NOT be triggered!!! So we could lose more money in our spread than intended if our short goes against us. If our long goes against us we would lose at most 30% but if our short goes against us we could lose even more at most 43% (100/143 = 0.7)… Do you see this flaw when setting SL on spreads?
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