HELP ME...hedge a NDX june put position

Discussion in 'Options' started by Uritz, Jun 9, 2010.

  1. Uritz


    I'm a NEWBEE to options...

    last week of May.. I bought NDX puts some 'out of money' ..thinking I was buying "July"..I wound up with Junes...just discovered it.. they are now underwater at the moment .. What's a way I can cover my dollars with some sort of a money win hedge of sorts?? ???

    Would I sell 'out of the money June,,, or AUGUST,, calls, or , or, Puts,, or?

    I was expecting the SPX market to make a quick drop to 850/950 etc.. still waiting

  2. So you were expecting SPX to drop to 850/950 and bought OTM NDX puts and then got the month wrong. I dont think anything matches up in your post. To make it worse you seem to be asking for a way to turn your trade into a risk-free position. I assume you also want this week's winning lottery numbers before the drawing?
  3. drcha


    It's okay. I make mistakes like that all the time: hit buy instead of sell, deal in the wrong month, etc. The key thing is that you caught it.

    So, do you still expect a fall? It sounds like you do. If you do, you could sell the Jun and buy some Jul or Aug or whatever you want. If you don't expect a further fall, just get out of the trade and move on.

    Whatever direction SPX/NDX takes, you might want to think about the volatility, which is pretty high right now. If the volatility falls, you could lose your money even if you get the direction right. The time to buy puts was when the VIX was at 20. Have you thought about trying a bear spread, where decreasing volatility is less likely to crucify you?

    Do you have an overall plan for how/when you will act if things do not go your way? What kind of trade is this for you? If this is a trade for income, you need a stop loss, at least one that is in your head. Generally, it's pretty hard to salvage a directional trade. When they don't work, you gotta cut them loose. But if the trade is a hedge/insurance policy against long positions, a crap shoot, or a "Hail Mary pass," and it represents a small fraction of your capital, there is nothing wrong with leaving your trade on until expiration.