Whats the best way to hedge against multiple positions?

Discussion in 'Risk Management' started by cashmoney69, Jul 7, 2009.

  1. I'm long 5 different positions, and short 1. One of those longs is the DXD (dow ultra short)

    I never like being all long or short in my account, I like to spread out my risk, but my questions is, whats the best way to do this?

    buy puts on all my long positions or just do what i did and go long the short ETF?

    thanks

    note: the position circled in blue is my hedge...good thing i had it too.
     
  2. You can't have long & short positions all the time. How are you going to make money?
     
  3. because the markets going to go one way or the other, which ever way it goes, i simple close the other positions. Further more, I'm always more weighted on one side than the other, like now. I'm long more positions than i am short.
     
  4. What happens in the market goes one way, you close the positions against it, and then it reverses?

    Do you re-open the positions?

    If this occurs a few times, commissions and spreads will eat up most of your potential for exceeding market returns, in the best case scenario. The worse case scenario is margin call and liquidation by your broker at prices he chooses.
     
  5. no, i wont get back in, because for my time frame (several weeks) that usually doesnt happen, and in that time i usually have a chance to move up stops to BE or a small profit, so if it did reverse, its not that big a deal.


    no one answered my question.
     
  6. I would short SPY as hedge. Options are contracts and since your strategy relies on scaling the short position it will be hard to implement that with options.
     
  7. You're already hedged.

    If you start playing around with options, you're going to overcomplicate your portfolio (even though, by definition, you're already "playing around with options" in the Dow Ultra Short position ... but hopefully someone who is professional is doing it.)

    If you are concerned with the over-exposure to the Long side, simple redistribute your shares so that your porfolio is more balanced, or just sell off some positions and go to cash.
     
  8. you are pretty well hedged, especially since you have a good chunk of your flow on DXD.

    if you want to be moreso, you may also look to short a weak stock in the same industry as one of your longs, i.e. one that you deem markedly weaker than your long so in the case of a bull market, your short will rise less or fall more in a bear market.
     
  9. How is that different from being flat, and then opening a position in the right direction at the same place you would have stopped yourself out of the losing direction?
     
  10. because your not going to know that till after the fact. can you tell me with 100% accuracy where the market will go tomorrow?...no. thats why we hedge.

    and for the record id never trade the options and the etfs as a hedge, thats over kill and over-complicating things.
     
    #10     Jul 9, 2009