Let me give you an example: If I open an Iron Condor, I can benefit from the premium I collect upfront. Now, in case the price breaks out through one of the legs (either the Call or the Put side), I prepare in advance by placing a pending CFD order in the same direction — this acts as a hedge. So for example: If the price breaks above the short Call strike, I trigger a Buy CFD pending order. If the price breaks below the short Put strike, I trigger a Sell CFD pending order. This way, I’m not caught by surprise, and the CFD position helps offset the loss from the broken leg. However — if after the pending CFD order is triggered, the price reverses back, I may end up in a losing position on both the Iron Condor leg and the CFD hedge. So the key challenge is timing the CFD hedge properly and being aware of false breakouts.
What is the advantage of Cfd's, unless you are spreadbetting in UK tax free? A condor/fly is already hedged. As soon as you add anything else, you are morphing into another completely different trade. Then... if as you say you can time it and be aware of false breakout, you don't need anything else. I have tried what you are talking about years ago... it's all good until you get punched in the face by a whipsaw that eats away way a multiplier of the initial credit that you have received.
As long as I’m getting premium at a specific level, I need to hedge it — not to win more, but to avoid losing what I already earned.
ok, but the long legs are an hedge. With limited gain and loss that a condor offers, if you enter a spot trade, cfd, future or stock... you flip from non directional to purely directional. Would you have a stop loss for that? how much of that condor credit will that stop be? I trade condors and I don't see them as "already earned" until I close the position or it expires.
I would do a Ratio Write and use the premiums to finance the Puts. You can hedge anything with anything as long as the underlying is the same. You can hedge a S&P 500 CFD position with SPY/VOO options, or SPX/XSP options, or ES/MES options. Issue is not getting hit by margin. You can hedge in another account that is on Reg-T and got enough cash to cover the margin post for the option position, so you avoid getting hit by interest.
I’m thinking about hedging my option positions using CFDs to prevent or reduce losses. I’ve explored a few different approaches, but I haven’t found anything fully satisfying yet.
For example, I’ve tried combining an Iron Condor with CFD trades — opening a CFD position in the direction of the broken leg (above or below), so if price breaks out, the CFD can help offset the option loss and potentially turn it into profit. It’s not a complete system yet, but I’m working on refining it.