Hedging Systematic Risk - Nasdaq Composite

Discussion in 'Trading' started by Darth-trader, Apr 7, 2016.

  1. If one is looking to hedge his exposure to the Nasdaq Composite, does anyone have an opinion of what would be best way to this? Think of a starting portfolio size of about 50k

    My considerations:

    - Short the QQQ ETF: problem here however is that it only covers the Nasdaq-100 which is relatively bias towards large cap growth stocks and mostly non-financials. If you see a outperformance in the small caps (which are probably a small part of the overall comp anyways) you wouldn’t be capturing this

    - Long the Inverse QQQ ETF (PSQ): similar argument above

    - Short the ONEQ ETF (Fidelity managed fund for the full Nasdaq comp): looks like a decent product but the liquidity is poor, wide bid/ask spreads so difficult to scale your risk exposure without taking a price hit

    - Short the NL futures contract (Nasdaq-comp minis): problem here is 1 contract is about 98k and that is massive exposure to start with. This is probably the best option but you really need to build up the size

    - Options on Nasdaq 100 via NDX: would have to be buy and hold, difficult to scale risk exposure and would be costly as there are so many moving parts (greeks, IV etc). Again its Nasdaq-100 so you might as well go with QQQ as its simpler

    Anyone have any insights? Im a first time poster but looking to contribute to this forum which I have tracked for some time.

    Also with the ETFs, just generally speaking is it better to short the ETF or go long the inverse? Further as one becomes of a substantial size I would assume futures is the best way to go to hedge the systematic risk.
  2. OptionGuru


    IMO ....... Since the Nasdaq is a composite of stocks "hedging" would be pointless.

  3. Hi OptionGuru,

    Care to explain why you think it is pointless?
  4. CBC


    I agree
  5. The best way to hedge exposure to Nasdaq is to reduce/unwind the position.
  6. What if you want to neutralise the beta of your portfolio?
  7. OptionGuru


    Reduce or unwind the position.

    Martinghoul and Chubbly like this.
  8. Reducing your position size would not impact the beta of the overall portfolio.
  9. eurusdzn


    Maybe look to buy some VXX etf at about 17 if we move higher here in the next few days.
    Seems the R:R is asymetric where your other choices are not.
  10. Unfortunately hedging the movements (beta) is not the same as hedging the volatility of the movements which is more about hedging the variation in the movements. Thanks for your reply however appears QQQ is the best way for the moment, covers about 70% of the comp by rough calculation
    #10     Apr 8, 2016