Hedging

Hello if I have a long call Spx how do I hedge it ?

 

Figure out what your goal is. Do you want to be delta neutral? Some kind of partial hedge? The possibilities are endless. Sell futures, sell calls, buy puts, etc. etc. against your position. Or just reduce your size

 

What about buying a few vix ?

 

Sure, that can be viable assuming you are looking at only the very short term.

 

First ask yourself, why do you want to hedge?

As that would help find the more suitable hedge

Like if I had a long SPX call, and wanted to hedge against some emergency oil news. I could buy a put in XLE or whatever ETF/stocks that matches the SPX energy sector to negate the outcome of that news event while still being long the other SPX sectors.

 

I assume you want to hedge deltas

Cleanest way = sell Es future (50 deltas per)
Next choice = sell 100 SPY shares

 

I assumed you are a fellow retail option trader?

If you have a long call SPX you must be expecting SPX to go up? You already are at a limited loss situation any additional hedge will typically limit your up side so why hedge? If you are not sure, then do a spread instead to further reduce downside but will then limit your upside.

There is no free lunch.

 

You hedge long calls to collect the gamma. If you have 100 deltas in OTM SPX calls and -1000 SPY.. market closes 2.5% in either direction [or whatever the vol is priced at] over the next week and you make money either way.

 

There is an unlimited number of ways to hedge a long call in the SPX. However I wouldn’t recommend more long premium, so in this case you would want to sell another call option against the call you already own. If you’re bullish, which is most likely since you're long a call, you would want to sell a deeper out of the money call option to reduce your premium risk while still allowing you to benefit with upward movement.

 

Respectfully disagree. The other month I accidentally bought an SPX call strike I wanted a few weeks earlier than I intended. It cost me like .15 and it finished ITM by $3 or something. Positive convexity is one of the most attractive features of long premium; I don't understand why anyone would give that away for a few dollars by selling a higher strike. Especially in SPX where the vol figures just get thinner and thinner as you go up. If you're after a capped payment for risk I think there's almost always a better way to structure it than debit vert.