Beta neutral portfolio

[saabbasi]

I am long a few stocks, and want to be beta neutral to the S&P500 since I don't have any view on the market in general.

I have an ETrade account, and it looks like shorting the SPY index will be expensive since ETrade will charge approx 5% interest on the margin. Similarly I could short other stocks but I don't really have a strong negative sentiment on any specific stocks and will also be charged the same interest on margin.

Any other thoughts on how to get this done cheaply? Would it make sense to use options, for example buying deep in the money SPY long term put options?

 

[Martinghoul]

I am no expert in stocks, but options aren't really gonna help you, given the transaction costs you're likely to incur when delta-hedging. You'd better bite the bullet and do the index or find some stocks you don't like and don't mind shorting.

 

[scose-no-doubt]

I'm probably overlooking something here but why can't you just sell up and buy the index?

 

[D70]

I am long a few stocks, and want to be beta neutral to the S&P500 since I don't have any view on the market in general.

I have an ETrade account, and it looks like shorting the SPY index will be expensive since ETrade will charge approx 5% interest on the margin. Similarly I could short other stocks but I don't really have a strong negative sentiment on any specific stocks and will also be charged the same interest on margin.

Any other thoughts on how to get this done cheaply? Would it make sense to use options, for example buying deep in the money SPY long term put options?

Open a spread betting account, there you can hedge (cheaply) your stocks by shorting some index. Spread is the only cost if you choose a futures contract.

 

[new_trader]

Open a spread betting account, there you can hedge (cheaply) your stocks by shorting some index. Spread is the only cost if you choose a futures contract.

I don't hedge any of my stocks. I buy when I think the time right and will sell when I think the time is right. Hedging is for guessers.

 

[D70]

I don't hedge any of my stocks. I buy when I think the time right and will sell when I think the time is right. Hedging is for guessers.

The thread starter does not care for your trading.
He asked a very simple question.

 

[Martinghoul]

Open a spread betting account, there you can hedge (cheaply) your stocks by shorting some index. Spread is the only cost if you choose a futures contract.

Well, the only problem with this is that you'll have to post margin in two separate accounts, which may be a bit of a bummer. Obviously, depends on the specific circumstances.

 

[new_trader]

The thread starter does not care for your trading.
He asked a very simple question.

I don't care for your opinion. I made a simple statement...f*cking people

 

[scose-no-doubt]

he'll also pay libor on the notional through a spread betting account too.

 

[saabbasi]

I'm probably overlooking something here but why can't you just sell up and buy the index?

Can you elaborate a bit on what you mean? I don't have a view on the market in general, just a positive view on a few stocks.

 

[scose-no-doubt]

Sorry I read your initial post incorrectly.

 

[saabbasi]

Thanks for the replies. I will look into trading spreads, but for now I'm leaning towards shorting the index to make my portfolio beta neutral. Given this, what would be a good instrument to short? I'm thinking of shorting either the SPY ETF or S&P500 futures. Which would be more efficient from a capital and transaction cost perspective. Any other instruments that may make more sense?

 

[agenda88]

Good day everyone,
I'd like to pick up on the thread and go back to the basis of a beta-neutral portfolio
I understand the concept, but im struggling with the day to day use :
--> How could anyone benefit from a beta-neutral portfolio ?..
(meaning if its correctly balanced, you should not be able to benefit or loose from it. its the whole point isnt it ?

I can see some bits of answers .. :
- the portfolio holder is unwilling to liquidate its positions (lets say for fiscal reasons, he doesnt want to generate YET any realized profit
- the portfolio holder, instead of fully hedging its portfolio, leaves a bias. For example, w/ a 3.00 beta on a 40k portfolio, he only short 80k of the index. Therfore he tolerates to loose 1/3 of the total loss its portfolio can sustain. (and he can gain 1/3 of the total equity gain)
- the portfolio holder hedges fully its portfolio at one point, and bets that the total beta will keep rising (however he doesnt reajust its short position). Well, its a variant from the second option, isnt it ?

would you see anything else ?

Cheers (and sorry for the rugged english)