Deltra neutral question

Discussion in 'Options' started by nravo, Aug 29, 2007.

  1. nravo


    Ok, so I'm puzzled over Ansbacher's new option writing strategy, which is to delta hedge short puts on the SP 500 futures with the futures themselves. So, let's say I write 10 OTM puts with a delta of 10. I would hedge with 1 futures contract short. Now here is where I don't get it? How can that possibly be a decent hedge. Isn't there something like gamma risk involved. I meanif the market tanks, yea the futures will make out, but the spike in the puts will dwarf that, no? (I won't even get into the issue of upside spikes killing the futures hedge.) I am thinking write about this? Small reward and minor hedge on either side.
  2. nravo


    And apologies for the illiteracies in the last post. I have chaos all around me ...
  3. ajna


    I think you summed up pretty much why shorting naked far otm options are nearly impossible to hedge well. If he is in fact trying to stay delta neutral at entry, he'll lose both ways pretty fast. If he is partially hedging, maybe that could work, but still tough when you're selling nickels and dimes. If you short beefier options at least you have some flexibility to make this work.
  4. It is a lot easier to just not overtrade. It is easier and cheaper to use proper money and trade management, then to tie yourself up in knots trying to be clever. As they say, sell down to the sleeping level...
  5. nravo


    Is there away to get gamma neutral or close (and still make money) with a put writing strategy?
  6. MTE


    To hedge gamma you'd use other options. You can reduce it by selling a put vertical rather than a naked put.
  7. ? put-credit spreads instead.
  8. LOL ! :D :D :D
  9. Okay.....if you think that's funny, combine the put-credit spread with an out-of-the-money call-credit-spread. You can sleep a little better and usually make money on both positions.
  10. nravo


    Ok, we've mentioned bull put credit spread and an iron condor. But what I was really inquiring about was is there a way to get gamma neutral with a put writing strategy using futures rather than just off-setting options or heding a naked put by buying a further OTM call.
    #10     Aug 30, 2007