How to hedge your option positions?

Discussion in 'Options' started by klurby, Jul 10, 2011.

  1. klurby

    klurby

    Alright guys, I think it is time for me to start learning how to hedge my option positions, but first I need to know if it is even necessary to do so yet? Here are the main strategies I use.

    -Long Stock
    -Buy Writes
    -Long Calls
    -Long Puts
    -Bull Call Spreads
    -Bear Call Spreads
    -Bear Put Spreads
    -Bull Put Spreads

    Now is it time for me to start hedging my positions? Under what circumstances should you hedge your positions? Is hedging basically the same thing as being delta neutral? Does hedging your positions allow you to limit your risk and profit more at the same time? Are there capital minimums that people generally go by before deciding to hedge their positions? Thanks guys!
     
  2. ajna

    ajna

    Your last 6 positions are already limited risk.
    First 2 have naked risk to 0.
    Decide on need or type of hedge based on you risk tolerance and expectation of the underlying and volatility.
     
  3. klurby, you need to buy a book. You're attempting to have the forum fill your empty trading journal at your request. That's not going to happen. You're too inexperienced and it's complex.

    Go to amazon and search "options" and:

    Natenberg, Baird, Hull, Cottle, etc.

    I've not read any of them, but they are the common reference material for the beginning vol trader.
     
  4. In addition, Google "Options + Hedging" and try reading some of it :)
     
  5. The best way to hedge option positions is to peel them off; while not sabotaging your deltas. Or better yet, while moving towards your target delta. Any other means will increase your risk in other dimensions (theata or vega or gamma or whatever).

    If you do have really huge option positions and want to temporarily hedge some of the risk; you can try puting positions in either stock or futures but by nature they are not limited risk.

    -gariki