absolutely, : you have to pay so that you can sleep well knowing that you are hedged. That sleep ain't free !
Mandelbrotset Exposed http://www.elitetrader.com/vb/showthread.php?s=&threadid=169607&perpage=6&pagenumber=7
One way to do it is find the beta of each individual stock, go Beta x price x number of shares you own, then divide that by the price of the spy's this will give you the exact amount of spy shares you need to short to remain market neutral. Obviously you dont hedge the dow ultra short etf like this.
Good point. Too many forget to check their Delta's. You can figure out your total exposure using dwl603's math on your whole book. Yes, I like to be hedged overnight. My overnights are bets on outperformance of peers or index, not always just directional. Most traders on here know this, but since you asked here is an example: If you are long an energy name with a 2.25 delta and decide to hedge with XOM (which is a .85 delta or thereabouts) a market neutral hedge would be 2.65x of XOM the $ amt you are long in high beta name. Oftentimes you will see your undervalued high beta name unched or so in a down energy market let's say, because its cheap or has gotten too beaten down that's why you're long, and you clean up on your 'hedge'. Too often I find people puzzled thinking the are hedged because they only went dollar-neutral, or shorted the same dollar amount in hedge.