In my retirement account, I can't short a stock but I can buy put options. I have some strategies that average around 1% or more profit per trade. However when I look at the put options, the difference between the bid and ask is typically way over 1%, sometimes as high as 100%. I might be lucky and be able to buy on the bid and sell on the ask, but that's depending on luck. I believe that you should really count that bid/ask spread as an expense. Not counting that bid/ask spread as an expense would be like going to a used car dealer, buying a car for the retail price at $10,000 then hoping to sell it back to the dealer right away for a retail price of $11,000. That's not going to happen, you'll get the wholesale price of $8,000 if you sell it back to the dealer.
When I buy or short an actual stock, the bid ask spread is much smaller, sometimes as little as 1¢, which in percentage terms might be as little as 0.1%, enough room for me to make a profit.
Is there something different with the math for put options that I'm missing? It looks to me that I have to make at least an average of 5 to 10% a trade just to overcome the bid ask spread.
There is no "perfect" hedge. The point of hedging is to "protect the bulk" of the asset. Any hedge will work if called upon.... to a degree. Which will/would have worked best? Won't know until after the fact. You can't realistically hedge "spreads", you can't hedge "noise".... just cover the bulk of the risk... that's the best you're likely to do.
"Hedging" is no assured pathway to success. If your hedge is successful, you protected capital. If not successful, the "hedge cost" hurt your returns. As in all "market things", there is no free lunch.
If you want to make any REAL money... you likely have to take a large, unhedged position and be correct about it. All the rest... though you may feel like you're "trading" and accomplishing something.... is just "dancing around break-even".