how to hedge a open a short

Discussion in 'Options' started by Mdtbyk, Feb 6, 2018.

  1. Mdtbyk

    Mdtbyk

    i did both and hey he doesn't have to answer if he doesn't want
     
    #11     Feb 6, 2018
  2. zdreg

    zdreg

    if you are short a put that means you are moderately bullish.
     
    #12     Feb 6, 2018
  3. Mdtbyk

    Mdtbyk

    i have been trading for 3 years and i was never bearish or bullish neutral
     
    #13     Feb 6, 2018
  4. Lee-

    Lee-

    Short the ES and buy a call, then you're synthetically neutral. ;)

    Another option would be to identify a correlation in VIX and perhaps make a play there. Presumably a further down trend would correlate to VIX remaining high. As such there may be a play there, but then you introduce the risk of the market continuing down while VIX drops.

    You could pick key players in the S&P that you think will move highly correlated with the S&P and open positions (depending if they're highly negatively correlated or positively correlated) and open positions there. There's tons of ways to do this, but they each have pros and cons such as only being a partial hedge (opening positions in specific companies) or introduce additional risk of volatility moving unexpectedly (as in the VIX play).

    For example, XOM appeared to me to be a big piece of the movement at one point, so a hedge would be to short XOM -- or buy puts on XOM and other big players that are likely to drag the S&P down. I'm not suggesting to do any specific position, just throwing ideas out to hopefully get your mind thinking in different ways.
     
    #14     Feb 6, 2018
    Mdtbyk likes this.
  5. Mdtbyk

    Mdtbyk

    thanks that is something new
     
    #15     Feb 6, 2018
  6. zdreg

    zdreg

    if you never were bearish you can sell puts all day long.
     
    #16     Feb 6, 2018
  7. Mdtbyk

    Mdtbyk

    i did it often paid out pretty well

    how would i calculate how much i need to protect the actual ES option ? i assume that one contract of mom won't to tame me far
     
    #17     Feb 6, 2018
  8. vegamedic

    vegamedic

    before getting to the question: if you're selling puts on a future and don't know what delta hedging is, I'd strongly suggest you move to a smaller product and/or take a break from trading and start doing a lot of reading. Selling puts has been like printing money for a while now, but the risks of doing it blindly without understanding the risks involved (which you've admitted you don't) is a blown account waiting to happen. i mean this in the nicest but also most sincere way.

    how to hedge a short put on the ES depends on what risk you're trying to hedge, as well as how much of that risk you want hedged. If it's price or delta, you can do what another poster suggested and buy the call and short the future, you could straight short the future to offset your delta exposure, you could sell calls equivalent in delta to what your put is riding at, etc. Each of the other common risk metrics (gamma, vega, etc) have other ways of being hedged. You could also try rolling down and out...you might get lucky.
     
    #18     Feb 6, 2018
  9. The reverse conversion is short underlying + long synthetic. With an ES short at 2750, one synthetic would be to short the 2750 puts and buy the 2750 calls. You can also split the strikes to give you some area for profit, e.g. short 2725 puts, long 2775 calls. That is a synthetic vertical spread (a long put vertical). You can hunt around for the vertical that interests you or use the synthetic long at 2750 to neutralize the short. Simply closing the short is perhaps the easiest thing to do if you don't like it anymore.

    If your opening trade was to short the ES puts, you're bullish and would need to add negative deltas to neutralize: buy real puts or synthetic puts (short futures + long calls) above or below the market as you see fit. Or just buy the open put back. You can also just short a future into the put to convert it to a synthetic short call.
     
    Last edited: Feb 6, 2018
    #19     Feb 6, 2018
  10. Selling Naked.... Play stupid games, when stupid prizes.

    We all know what Warren Buffet said happens when the tide goes out.
     
    #20     Feb 6, 2018