Buy and sell the same strike put? Dude, wtf? That’s bid/ask for that strike, it’s the same as if you were suggesting to buy and sell ES simulatenously.
Yea, sorry. Wasn’t thinking straight on that one, been a long week!!! Lol. Just woke up from power nap after posting that and thinking better now. I recall seeing some threads about using multiple accounts to do some type of illegal scheme.... have to try to find those. at any rate... now I’m thinking use different symbols, as you mentioned before to accomplish hedge (I.e.... short e-mini for long SPY position). Still analyzing...gotta be a way.
What i meant was taking o/p position using diff instrument to take advantage of temp downturn...IF you still believe long term the underlying is going to go upwards!
This question is as old as finance itself. Firstly, I know you gave an example of a portfolio net liq of half a million, and allocating 100% into $SPY, as I'd never do such a thing but for examples sake lets work through some points. I'm wondering what is the most efficient way to hedge such a position? You are long stock which is delta 1, so I'm assuming using options would be probably the most efficient use. Now obviously you'd need capital to hedge so you wouldn't allocate the entire 500k into the $pyderz. The problem I have with hedging such a position is you need to be very good at timing the event (correctional crash), or do you? By all means I'm not a hedge expert so people correct me if wrong but it seems you are going to buy protection using options on $SPY? Now the question is which strike and expiration would give you the best bang for your hedge in terms of your outlook and time-frame associated with your forecast. Now is there a certain percentage in which portfolio managers or anybody who truly hedges porftolios would know of puts vs notional? Since hedge's cost dough and IMO they are entirely new positions added on top of the matrix.. but I read they might pay only `1-2% for protection because remember that percentage now EATS into your potential risk-adjusted return annually. So the cost of puts obviously affects alpha. The question is do you give a shit? Are you some retail trader or a professional? It all depends. The costs of the put protection can be cheapened by selling OTM puts thus verticalizing your long puts. But then again, it all depends. Timing is hugely important for delta hedging with options. Also you need to take into account the VELOCITY of the correction. Magnitudinal moves such as these past few weeks you'll notice your OTM puts most likely imploded to the stratosphere. But not all market moves that are red can compare to this, this is a true six sigma. Depending on the velocity and time-frame your protected puts could at first SEEM like a hedge because of the gamma but if the move isn't ballistic and more subtle and more like a geometric drift just downwards then your put can actually harm your entire scheme.
%% Good points. I like the option of some long +some short/inverse ETFs. Long the strongest+ inverse the weakest= better than an outright short in some ways...……………………………………………….. AND really, should NOT trade/invest with money you cant afford to lose. [Im not in SDOW@ the moment+ its not a liquid leader like SPY. BUT ,SDOW...….is liquid enough]
A variation on a synthetic long vertical. You're long shares; short calls; long puts. No haircut--just the debit requirement on the strike differential.