What would be a simple and inexpensive long term hedge for a flash crash? I could think of long dated far out of the money with GTC sell order to close, PUT options on indexes, CALL on VIX, UVIX, UVXY or PUT options on stocks.
Ask Ken, he installed chatgpt in his sex dolls, they can answer your question. And Ken knows a thing about vol ETFs and their inverses, lol.
We've really only had one "Flash Crash", way back in 2010, and it only lasted for half an hour. By the time it was done, the market recovered most of its losses. So why would you want to get a "long term" hedge? First, nobody knows for sure when the next one will happen. It might not happen for another 10 years and you'll just be sitting on a mountain of worries that may never materialize. Second, if price crashes but then comes right back up like in the last crash, your hedge would have been for nothing.
You haven't stated what you want to hedge (portfolio, short vol positions ...) Probably a long put back spread could be done for zero cost. You have convexity working in your favour in that position.
If you had a long position in the market based on leverage then there would have been a good change that you had gotten wiped out,unless your broker was sleeping.
I would like to hedge against "market malfunctioning" risk as they call it, or if i understand it correctly, if there will be too many sellers for the market liquidity to take in, for a longer time, could drive prices really low. Like a >6 sigma event. And I would like to hedge a family portfolio, so investments in a few ETFs and stocks, with leverage 1/3 to 1/2 of the portfolio value. I would be fine with the hedge not doing anything, just for long term peace of mind of such extreme events. I would put a GTC order on this hedge so in the event there will be a flash crash (one that will quickly recover) then the order would get filled and the hedge exited. I think the long put ratio backspread suggested by @getthatintoya is a good idea, i will experiment with that, thank you
Long-term backspreads? How would that work? The cost of one long would be almost the cost of one short.
al3x wants to hedge a flash crash ie sharp down, sharp move straight back up. This may never happen again so you don't want to be paying for your hedge that is why I suggested long put backspread. He mentioned 6 sigma move so that is where you would place your longs *2 and then move up the chain to sell one to pay for it so it would be done for evens. Unless you are margined on your portfolio I can't see the point if your view is straight down straight back up but each to their own. If you wanted to hedge for say a black swan ie large move down unknown time to move back up then I would use something very different to that.
To do this without a drag on returns is a highly contested part of finance (ie it’s very hard). to do this the dumb way will cause significant drag on your earnings. If you dont have any leverage these malfunctioning events won’t affect you. If you do, you should be watching your portfolio closely enough to manage it in the event of a malfunctioning event.
Maybe just set in a buy order at a strike of -20% of the underlying for $2.00 or so? Wouldn't trigger unless the SPY was well below the strike. Just roll the buy order every week or so.