The benefit of shorting constituents is down and out skew on the index. I would treat the "sixty" as an index and sell puts (ratio) in 2Xs. Short 60 stocks -> short 2x (short-share lots) the 20-delta put in SPY. You can beta-weight, but you'll trade more conservatively by sticking to the 2:1 ratio. There are many advantages to this (long disp) hedge. Use NDX or Qs if it's largely tech. You're in a synthetic straddle, initially short delta, with gammas reduced by skew and the dispersion effect. The primary risk is correlation.
thanks for your reply austin the hedge is not tax related, tax is totally out of the picture as i'm offshore. the purpose of the hedge is saving time (closing and reopening 60 positions at a decent price takes some time) and commissions. if i would have all the time in the world, and commission money was zero, i would close them all at some point on monday or tuesday and reopen them hours or a couple of days later. i'm thinking about (and discussing here) a more efficient way. so to recap: the purpose of the hedge is to protect unrealized profits
a 50 dollar stock,simplest way to short would be short the 25 calls and be long the 50's,you might do this spread for 20,capping your max loss at 500 and max gain at 2000,shorting 100 shares with $500 in capital ,your risk is well defined and easily managed on a stock per stock basis,and mentally your worse case scenario can't hurt you if you are risking an affordable amount,no guesswork ,look at the options and see which is the least expensive spread
Thanks for your reply atticus, 1) what does: 'down and out skew on the index' mean? 2) as i understand, you say to sell 2x the amount of puts? so if i'm for example short 100 shares per position, to short 2 puts per position? but what if the whole market tanks? and all options get exercised? i would be 100% long. or did i misunderstand you?
thanks for your reply ammo, i believe you have misunderstood my original post? at this moment i am short a basket of 60 stocks. ranging from 50 shares to 600 shares per stocks. i'm looking to temporarily hedge against upswings some time next week. thanks
rosy> that would seem the best solution, only it's not do-able commission wise for this portfolio + the spreads on the calls and puts would kill performance if i would want to take the hedge off after only a couple of hours
then figure out from the past few days what your basket did,went up 30 ,down 30,compared to es or nq up/down 100,3 to 10 ratio for example,then ratio it off,sounds like you figured one thing and the market is doing another and you have left the comfort zone,you could dump the greed option and take your profits now,if the market works in your favor until the opening and then restablish the position as a hedge and control your risk ,live to play forever,or hedge in the ratio dept
Chuck, Be careful bud. Trying to cover 60 stocks when (if) the markets turn around is going to be painful. If you have some good profits already I would consider reducing your short exposure to 20 stocks or less and keep only the ones you feel most confident about. You could use a hedge ratio or calls. The market is desperately seeking a reason to rally and any comments from governments (whether valid or not) could spark a monster rally(though I wouldn't hold my breath). To me, gold and the 10yr are the tells of the market right now. Keep an eye on them. ex. Dow up 500, gold down 20 and the 10yr moves up only 8 basis points tells me the market is not convinced. Not to mention light volume on up days. When the rally is for real gold will be down 150 to 300 points, the 10yr will be above 2.50% in a flash. Keep an eye on the IV and HV of the options you want so you know where you are in the range. Wait for the IV to come down before you buy calls. Good hunting!