Hedging ES

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ibuydips

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Hi all,

I would like to know, what is the best way to Hedge against the ES during intra-day.

For example. I get filled on the ES at 1200.00 what other type of futures instruments could I get into to neutralize my ES position to as close as zero as possible?

I know it is possible to hedge it with futures options, SPY, and possibly SPY options. However I am looking for some other unique answers.

If you do mention a specific instrument to hedge it with please tell me the ratio to 1 ES contract.

Thanks.
 
Ok I don't want answers regarding not taking the position or cutting losses short. That is a different concept from what I am asking. Please only real hedgers please answer.

How do you hedge against an ES position? What instruments and what size to hedge against 1 ES contract.

I will not go into details about what exactly I am trying to accomplish, but its in regards to reducing my risk at various times.

Thank you
 
ibuydips said:
I will not go into details about what exactly I am trying to accomplish, but its in regards to reducing my risk at various times.
Click to expand...

It's really hard to give a good answer if we don't know what you're trying to do. Putting on an opposing position in the big contract is just an offset in which you end up net flat (assuming the appropriate 1:5 ratio), but with the added transaction cost of that round-turn. Using ETFs could mean short-term tracking issues, plus there's the cost if all you're trying to do is effectively get flat. Taking an opposing position in another index (ratio determined by relative contract values) will remove general market directional exposure, but introduces relative performance exposure. Options can be used in a number of ways, but for intraday hedges they may be cost prohibative.
 
Rhody Trader said:
It's really hard to give a good answer if we don't know what you're trying to do. Putting on an opposing position in the big contract is just an offset in which you end up net flat (assuming the appropriate 1:5 ratio), but with the added transaction cost of that round-turn. Using ETFs could mean short-term tracking issues, plus there's the cost if all you're trying to do is effectively get flat. Taking an opposing position in another index (ratio determined by relative contract values) will remove general market directional exposure, but introduces relative performance exposure. Options can be used in a number of ways, but for intraday hedges they may be cost prohibative.
Click to expand...

Thanks John for your reply.

I am looking to hedge it with another futures contract that is highly correlated to the ES. Basically, if at any given point, if ES is ticking up, I'd like to see that contract ticking down. It doens't have to absolutely be a perfect hedge, in which the big contract would be, 5:1. But I want it to correlate atleast 80% of the day.


Any ideas about hedging it with NQ, ZN, or possibly CL, GC?

Thanks.
 
Anything else you choose, the correlation and the weight will be unstable. Do regressions over different samples to prove this to yourself, if you like.

There is no way to do what you're trying to do without making arbitrary assumptions. Making arbitrary assumptions means that you'll be exposing yourself to a potentially large drawdown one day. There is no "hedge", other than cutting.
 
Why don't you buy ES with one broker, sell the same amount ES contracts with another broker and pay for the privelage?
 
Are you trying to arb between 1 Big S&P 500 against 5 x E mini S&P 500
I am exploring the same using high end spreaders like CQG,
Not knowing what exactly your aim is it is difficult to explore this further!
Another idea may be using E mini Dow Jones futures as all DJ stocks are part of S&P 500 also
 
Rhody Trader said:
And the point of this would be....?
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I think a lot of ppl out there do not know the usefulness of hedging against Emini, thus giving u stupid suggestions, or being sarcastic.

I use Options to hedge against my Emini positions, and its effective.
Eg.
U r bullish on the market.
U long ES,
and at the same time, can Sell ITM QQQ PUT (This mth expiry), and Buy OTM QQQ PUT (next mth expiry), all at the same time.

if u r right, and Mkt moves up, u gain on ES profit, the PUT u sell become OTM, and immediately u absorb all Premium. and the PUT u buy still is OTM, thus not losing much premium.

If u r wrong, the mkt moves down, u lose on ES, the PUT u sell is still ITM, u lose some premium, but the PUT u buy will become ITM, thus increasing a lot in premium. Ur gain in ur buying of PUT will cover the ES losses from ur long position

In this way, u win more when u r right, and loss less when u r wrong. U hv done effective hedging against ur Emini trade.

Hope that helps.
 
alexsiew_bobdog said:
I think a lot of ppl out there do not know the usefulness of hedging against Emini, thus giving u stupid suggestions, or being sarcastic.

I use Options to hedge against my Emini positions, and its effective.
Eg.
U r bullish on the market.
U long ES,
and at the same time, can Sell ITM QQQ PUT (This mth expiry), and Buy OTM QQQ PUT (next mth expiry), all at the same time.

if u r right, and Mkt moves up, u gain on ES profit, the PUT u sell become OTM, and immediately u absorb all Premium. and the PUT u buy still is OTM, thus not losing much premium.

If u r wrong, the mkt moves down, u lose on ES, the PUT u sell is still ITM, u lose some premium, but the PUT u buy will become ITM, thus increasing a lot in premium. Ur gain in ur buying of PUT will cover the ES losses from ur long position

In this way, u win more when u r right, and loss less when u r wrong. U hv done effective hedging against ur Emini trade.

Hope that helps.
Click to expand...
SO you are talking about QQQ options for hedging ES ... What about co relation?
 
Ya. If there is correlation, it's hedging. If no correlation, it's just 2 separate thing. Work out ur co relation ya. No need spoon feeding right.
 
Right so your gamma, which costs net premiums, is going to pay out whether or not your outright pays off which is why you're making more when it does and losing less when it doesn't? So are you using a vol indicator for entries?
Dunno what you mean by working correlation. ES with what?
 
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oh boy, alexsiew...
U long ES,
and at the same time, can Sell ITM QQQ PUT (This mth expiry), and Buy OTM QQQ PUT (next mth expiry), all at the same time.


This will loose you even more money if ES drops.. Your ITM put has higher delta than OTM put.. So short put will loose MORE than long put.. Not only will you loose money on ES future if market drops, you will also loose on this invention of yours))
 
sambazone said:
oh boy, alexsiew...
U long ES,
and at the same time, can Sell ITM QQQ PUT (This mth expiry), and Buy OTM QQQ PUT (next mth expiry), all at the same time.


This will loose you even more money if ES drops.. Your ITM put has higher delta than OTM put.. So short put will loose MORE than long put.. Not only will you loose money on ES future if market drops, you will also loose on this invention of yours))
Click to expand...

does the vol skew and the diff expiries also play a part? ie hes long vol a dump in the price will pay off as the otm put has longer expiry? if these are strongly correlated, why not just buy a straddle (with the same underlying)? or a fly (bullish weighted though).

am a newbie to options so just asking.
 
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