Texas hedge

Discussion in 'Trading' started by Cutten, Jan 28, 2004.

  1. Cutten


    Anyone know the origin of the term "Texas Hedge"? I've heard this mentioned about basically "betting the ranch" and was wondering how the term arose.
  2. I would imagine it is similar to an "O'Hare Spread" ...
  3. LOL! Ok, Ok, my curiousity was peaked with Texas Hedge and the O'Hare Spread so I did some searching:
    Texas Hedge: A transaction that increases risk. Alternately, two or more related positions whose risk is additive rather than offsetting. An example might be buying calls to 'hedge' a long position in the underlying.

    I would imagine it was aptly called the Texas Hedge because you're "betting the ranch"

    O'Hare Spread: An insanely large position in a futures market, plus a cab ride to the airport. At the end of the day, either you've made a lot of money and you hop a plane to Hawaii, or you've lost much more than you have and you hop a plane to someplace out of reach of U.S. justice.

    If anyone is interested I found an interesting site that has
    "financial slang" definitions:

  4. Rio, not Hawaii.

    No extradition ...
  5. Cutten


    And I suppose there aren't too many hedges in Texas either, heh.

    So it would be like going long wheat, and then when it goes down you "hedge" it with some long corn?
  6. mgkrebs


    A Texas hedge is when a commercial who is already long the physical, goes long in the futures market. Say a farmer, who would normally be hedging by shorting, decides he is bullish, and goes long wheat, or a feedlot operator buying a bunch of cattle futures.
  7. I think that is the most accurate definition. My grandfather in law was a Minnesota farmer whose farm was given a Century Farm Award by then Gov. Ventura who wrote a letter. Century Farm is one that has produced goods for over a century. He showed all his trades in ledger books, there were quite a few, and explained his theory behind them. He was pretty good at it. Farming is not as simple as one would think. He was one of the first in Minnesota to hire an airplane to take photos of his crop to see where he needed to tile or grade to get the water where it needed to go.
  8. Cutten


    Ok, any of you guys interested in Texas Hedging, I've got the perfect investment opportunity for you:


    The Texas Hedge Fund Association!

    I wonder how often they've been asked what their hedging policy is :D
  9. It might have evolved from a story many years ago about a trader who established a long options position of about $700 mil. Then during lunch time when the futures were thin, he simply began buying every futures contract on the corasponding market.

    He was hoping to close out his option position at a massive profit. it failed terribly, and he dropped several hundred million of the firms money. Without their permission.

    Needless to say the police escorted from the office before the market closed.

  10. vega


    On the CBOE floor it refers to someone who makes an option trade and screws up his hedge. Example would be buying calls and instead of SELLING futures he buys them, now he has to sell twice as many to get back to neutral. A classic O'hare trade occured in the IBM pit at the CBOE a few years ago. This one local (known by many to be a liar and piece of Sh$t) traded say a 20 lot of options with a broker, and wrote down 200 on his ticket. Why did he do this ? Because he was shorting an obscene amount of stock against it, and in order for his risk manager not to go crazy, he had to make him think that he had an equal amount of off-setting delta. The local did this all day long with the hopes of IBM selling off, then he would cover his stock and the following morning deal with the outtrades on the options. The problem was that at about 1:00 PM CST the brokers started to figure out what was going on (because at the CBOE there are printed out sheets with outtrades handed out around 1:00 in the afternoon for the mornings trades), and the local abruptly left the floor and literally went to O'hare. His firm then found out and started covering the short stock (at a large loss) and this guy was never heard from again. Here's the real kicker -- the next day IBM gapped down a couple of bucks, and he would've made a killing !!!!!!!!!!!!!!

    #10     Jan 29, 2004