Hedging Options Book

Discussion in 'Options' started by TM1982, Oct 2, 2009.

  1. TM1982


    Anyone use future minis to hedge your deltas at end of day instead of hedging each stock's deltas? I think I may start doing this to save some money on commissions which is coming out to about 200 a day right now.

    Anyone know the equivalent dollar deltas of trading 1 S&P Mini, 1 Nasdaq Mini, and 1 Russell Mini?

  2. MTE


    ES is 50 deltas, NQ is 20, TF 100.
  3. mike007


    Or you could beta weight and just use that underlying.
  4. TM1982


    So in order to use 1 mini to hedge a book, you would need roughly:

    33,000 Dollar Deltas to use a Nasdaq Mini (20 *1670)

    50,000 Dollar Deltas to use an S&P Mini (50 *1000)

    58,000 Dollar Deltas to use a Russell Mini (100 *580)

    These are rough approximations!
  5. TM1982


    Can you give a quick example mike? Thanks.
  6. MTE


    1 ES contract gives you 50 deltas (i.e. 1 point move in the S&P 500/ES is equal to $50). So if you have an ATM call with a delta of 0.5 on let's say SPX, then you need 1 ES to hedge it, since 1 point in SPX options is $100.

    In order to hedge a book, you can use, as suggested beta weighting. That is, you take the total delta of a position in each underlying and then weigh it by the beta of that underlying relative to the ES, for example. It's not a perfect method though.
  7. I keep a short order on the mini's about 4-5% below the SPX index value in case someone nukes themselves (they nuke us, we vaporize them in return) in the overnight and equities get a scare. I don't over do it, just enough contracts to reset my normally neutral deltas at that 4-5% point. I have not had this hit since 2008, which is good because it's a real bother if the market rebounds. Note: I don't place the order at a single strike, but rather scale in around a region of prices in case there is a bad tick or a weird bound. The goal is to slow down the sled, not kill you position.