How would you hedge this using options on QQQ or options on NQ futures?

Discussion in 'Options' started by MidwesternTrader, Jul 10, 2018.

  1. You are making a directional trade each day on the NDX using NQ futures. A simple long or short call made each morning trading two NQ futures contracts each with a -15 stop loss (-$300 each). 1 contract is entered at 10:00 EST and 1 is entered at 11:00 EST in the same direction. Trades that are not stopped out for a -15 point loss are exited at end of regular trading hours 16:00 EST, so the account is flat each day.

    Is it even worth it to try and hedge this type of trading?
  2. Wouldn't the stop loss be the hedge?
  3. Is the reason you would ever hedge is because you want to do the two contract thing but it might be too much exposure one way? I dunno, i would guess just take it diwn to one contract, save the money for dry powder.
  4. Just interested to see if anyone hedges small risks amounts like the example. My first impression is the max risk level of -$600 is too small worry about setting up a counter position hedge, but I thought to throw it out there.
  5. spindr0


    I don't trade futures so I don't know how viable this thought is in that market. From an equity point of view...

    If day trading, no need to hedge. stops will manage the position.

    If carrying overnight and concerned about unknown opening price in the morning, perhaps hedge, especially if you're looking to lock in some current gain.
  6. Doobs789


    You can’t hedge the risk the drives your PnL, doing so would just reduce it. All trades must be exposed to some risk. The point of a hedge is to allow you to stay in the position until your edge is captured.

    Your trade is binary. If it’s a 50% prob at 1:1, then your avg winner needs to be >= 15.
  7. ironchef


    One of the most fundamental principles of option is that if you hedge so the trade becomes risk free, you will be getting the risk free rate of return. For us small mom and pop retails, commissions and slippages will kill the risk free profit every time.

    Another question is: Isn't a long short trade already a hedge?
  8. Doobs789


    Not quite, but professionals are playing an entirely different game. Retail traders typically use options to trade direction in a leveraged, risk-controlled fashion. Pros are either collecting the bid/ask spread and/or capturing vol-edge while managing inventory risk.
  9. The 10:00 AM and 11:00 AM trades are in the same direction. Either both will be long or both will be short. Or does the questions mean something else?