Interesting..now lets take another example, where you are long 20 stocks and short another 20 stocks and your dollar exposure to both sides is the same...How do such portfolios react to a sharp broad intraday directional market move, as in 1987 or March 2000 or Jan 2003? Are those usually really good days or really bad days for such market neutral portfolios, or just breakeven days? any real life experiences?
I don't understand this: "I am now fully hedged" http://www.elitetrader.com/vb/showthread.php?s=&threadid=78305
even if you make a perfect hedge u cannot possibly know the basis (physical price - futures price) at the end of your trade. So there is always uncertainty/risk in a hedge due to basis risk. In regards to options u can never construct a truly delta neutral hedge over an extended period of time incorporating big market moves