I am trading now, you literally enjoy arguing with people as a past time. It doesn't matter if my definition of a hedge is wrong, why doesn't it matter? because you're claiming what the OP wants to do is not something that is valid to do and make's no sense. I've seen it done effectively, if you don't believe me that's fine we can agree to disagree.
The guy is asking a question. I just don't understand why everyone act's like such an authority. Sure give your opinion, warn him or explain how you think or have never seen that work. That's not what you're doing. You're making an absolute statement that you know it doesn't work or there's no reason to do it. At any rate not going to debate anymore. Have a good evening.
Just to be clear I have no interest in debating this very much. The OP asked a question and the responses I saw looked pretty smug, assuming and disrespectful. If that's not how it appears to others, or the other posters didn't mean it that way fair enough. At any rate I am not speaking for equities(and I clarified that already) as I can only attest to my personal experience and what I've seen other traders do and that was used on Futures. #1 Let's say someone is long 1 NQ and they are up 40 points and it's a setup that is likely to have some temporarily means reversion(let's say 8-12 points) and/or in a consolidation range, but also likely to continue higher afterwards. Believe it or not for some people it's not as easy as "Oh just flip it short, than flip it long again". So, they will short 1 NQ on the other sub account, maybe even a couple of times in and out to get profits on that side while still holding the long from below. So if they are right, they make additional money. If they are wrong and it just rips up in there face, than yes they won't make anything additional, but they also won't be losing anything more. For some people they can mentally handle this approach better than trying to flip long to short, etc and it gives them time to keep assessing the situation as at that time the market can't hurt them even if it shoots up or down. You can say it's stupid or disagree all you want, doesn't change the fact I've seen it done quite a lot by a successful trader before. If you choose to not believe me, than debating this is pointless because if we can't have a good faith discussion everything is moot, since I am speaking from experience. #2 I am certainly not one of them, but some people trade with pretty heavy margin and they use a lot of their DT margin. Let's say you're in a position and margin clock is coming up, if you put on a counter position, some brokers will give you a partial margin credit, this will allow you to hold into the next session avoiding having to close anything, while also not having to worry about a gap down or up for some reason. Sure, you can say "you shouldn't be trading with that much margin". Another classic textbook answer, I get it. Sure, maybe you shouldn't but some people do and some people have made it very far doing that. Of course there in the minority, but hey he made it when most others didn't. I am not saying this is common or always the right play, but I have seen someone do it, multiple times who is a better trader than 99.9% of people on these boards. Not everything is 100% textbook and perfect when it comes to trading. Some thing's work better for others if nothing else than psychological reasons. Hopefully this is enough to explain my position, if it isn't than all I can do is apologize.
It is possible to be long and short by opening a risk reversal position. "If an investor is long a stock, they could create a short risk reversal to hedge their position by buying a put option and selling a call option."
Open sub-account. Each account requires their own capital. You pretty much summed up what I have been doing in trading futures in #1. There is much more though. As for #2, if I have intraday buy position with let profit run (interday perspective is also buy/up) and yet to hit my trailing stop by few minutes the trading session is closing, then I will open sell position on next far month contract in the same account. The purpose is not for margin but to lock volatility (protect from big gap down on next trading day). That is why spread trading has lower margin requirement than outright for interday.
What if one wanted to open both a buy and sell stop order over the top and bottom of a trading range for a breakout play where it has a 50/50 probability of going either way? Many brokers will not allow you to have both a long and short open order simultaneously, even if you are not attempting to have both positions filled.
1. That’s an entirely different scenario than opening a sub-account for the purpose of making it more convenient to lie to yourself about your P&L as was posited earlier. 2. I trade futures, and I have GTC and OCO buy and sell orders working all the time simultaneously in the same product.