Conservative position, using itm puts to hedge

Discussion in 'Options' started by arthanos, Apr 22, 2019.

  1. arthanos

    arthanos

    I might be missing something here, in fact I'm pretty sure I am, so if you can shoot some holes in this, please do!

    What if someone wants to protect his capital and just get a moderate return on it (and no, bonds are no option here, europe).
    Would it be an option to just go long QQQ for example, and get DITM yearly puts as a hedge?

    Looking at some numbers here, the QQQ 205 put expiring in DEC has just 1.29% annualized timevalue and 77 delta, and QQQ would need to rise about 7something % to be profitable.
    So pretty much almost no downside risk, and plenty of upside potential.

    Looking at historic QQQ returns this would have worked out great, to put these positions on during a dip or something.

    What am I missing, I am unable to backtest this so I have no idea if this would have worked out historically, are options simply that cheap now that this looks appealing?
     
    Last edited: Apr 22, 2019
  2. Recommend you reread your post, then revise to what you "intended" to post. -- SPY is currently around 290, a DITM PUT would > 290! (not 205) -- Did you mean 305?
     
  3. arthanos

    arthanos

    Yes I see I typed SPY, but I took the data from QQQ :)
    Changed it.
     
  4. Dolemite

    Dolemite

    Your position is synthetically equal to just buying the Dec 205 call so you don't need the stock and put.
     
  5. arthanos

    arthanos

    I am aware of that but it's a better idea to have cash in various stock indexes that are hedged than in moneymarkets with a negative interest rate...
     
  6. drmark27

    drmark27

    It's synthetically equivalent to a long call. Do you see where the risk is?