Cash, nice summary. Care to comment on some of your risk management techniques (I'm assuming you do more than just put on a position and roll when it gets into trouble)?
Ryan did you get a put spread on today? Does anyone know the company who TOS's uses for servers? I'd like to short THEM
speaking of hedges I realized that what I've been doing the last few months (inadvertently) was ratio put spreads by leaving a number of long puts out there until we were very close to expiration...it also acted as somewhat of a hedge when I put on the put side a little early for the next month. There hasn't really been a rhyme or reason...because I didn't really plan to do it. however it seems to have worked so well I'm thinking of Planning on doing it.
I've been in and out of the office most of the day so I haven't had a chance until now to try. I'm throwing my line in the water now, will see if the MM's are biting. ryan
Donna, Interesting you say you were doing this inadvertently as in March I did just that to a positon I had on. Not certain it was the best hedge available, but my thought process led me there. I've still very interested in hedging/adjustment strategies people are deploying, I've had to do only one (in addition to added to my long side) where I rolled up and increased my lot size to keep my credit. Bob
Donna, putting on the hedge at the time you open the spread(the equivalent of what u just mentioned) comes at a credit cost to you. While this is perhaps the best time to put on the hedge and take advantage of the upside gamma, it certainly reduces your overall credit. I wouldnt say you are necessarily any better off.
This is an area I am constantly trying to improve on. For me, risk management starts with defining the risk of each trade â selling spreads instead of selling naked puts/calls. Knowing what I can afford to lose is step one for me. I have many rules for determining when it is time to start looking to roll or get out of the way, but I think you are asking more about hedging. I donât (yet) have a hedging strategy in place. I am currently looking at S&P futures. I like the idea of being able to âwaitâ for the event before putting on the hedge. Since futures can be traded at all hours, it seems like a good way to go. I am just in the beginning stages of my due diligence in this area, so I am sure I will find out what the cons are soon enough. Also, at this point, I feel I need to hedge against abrupt swings in the market (Black/Brown/Dirty Swan), and not so much against moves against my positions that can be classified as normal market swings (even some of the larger ones). Iâll use my everyday risk management routine for those. Coach, have you done anything with S&P futures (E-minis) yet? I know at one time you looked at this as a possible hedging strategy, but donât remember if you ever implemented it.
What i meant was that you arent necessarily any better off UNLESS you time the direction right, which it seems you have been doing quite well from your posts regarding the legging in. I was speaking in general terms.
I am currently daytrading the E-mini S&P (ES) and becoming quite familiar with them. Since we have not had any un-clean Swan events I have not used them for hedging purposes. They are very liquid with a 1-tick b/a spread and they do trade practically 24 hours. They can be traded with very low INTRA-day margins depending on who your broker is. I would only use these for an intraday immediate hedge of sorts and not hold them for days like you would a put or call partial hedge. Remember in the Katrina Flood in New Orleans when those helicopters were dropping those humongous bags of sand into the breach in the levies? That is what this is. A huge sandbag to stop the flood momentarily until you can fix it permanently (i.e., get out of the position most likely). So it is an immediate measure to protect yourself and get out or adjust if needed. Thankfull, no need for it yet