market direction

[N Rothschild]

Re: Hedging with option

I had doubts about NR's strategy to hedge futures positions with options, or at least I wasn't sure how it would look in the book. I tested this with Nasdaq100 futures and the use of future options. I took screen shots and tracked the prices everyday.

Entry 22 April SHORT THE MARKET [ NQM10 2016.00. ]

Hedged by buying future options, NR said he used ATM but I wanted a variety so I chose 3 . [ ITM Sep, ATM Jun, OTM Jun]

Currently, NQM10 futures short position is up +78 and the hedged options are down roughly -28. Net positive for about 50 handles on NQ100. It is supporting NR's statement about paying 1/3 of total profits for hedging costs. { It's not in the image attached as I took it yesteday}.

When the market went up and futures position was down by about 30, options gained value by about 1/2 of it, resulting in net -15 handle open loss.

Summary
A hard stoploss of 15 handles will be almost sure to touch on NQ futures as daily ATR is about 30. If I wanted to scratch the trade, then the cost would have been -15, a very resonable cost for no-stress position trade entry. However, be prepared to pay for hedging costs in the eventual win.
... thank you NR 😎

not worrying about stops is the nicest thing in the world. for instance this SP down move, i know for a fact if i was just trading futures i woulda prolly missed the entire thing from moving stops to break even and all the ussual things traders do to shoot them selves in the foot!

 

[meanreversion]

What's this strategy, is it trading long gamma?

 

[N Rothschild]

synthetic positions, not do able in all markets, but the majority of them. some markets the spreads on the bid/ask are way to wide, copper for instance

 

[wackypete2]

Re: Hedging with option

not worrying about stops is the nicest thing in the world. for instance this SP down move, i know for a fact if i was just trading futures i woulda prolly missed the entire thing from moving stops to break even and all the ussual things traders do to shoot them selves in the foot!

Example of shooting self in foot:
I had a eur short this morning and got stopped out right before eur lost 100 pips. Being the only one to get stopped out during the biggest eur downtrend in years is quite a feat. Proud of myself 🙄

Peter

ADDED: Not to worry, I still have one good foot on the other leg.

 

[meanreversion]

So if you're bearish, you get short by buying the put then start to buy back the delta once spot has moved sufficiently in your favour?

This would have worked quite nicely this week, aside from the fact that spot has moved, implied vols have exploded.

 

[meanreversion]

Re: Hedging with option

Example of shooting self in foot:
I had a eur short this morning and got stopped out right before eur lost 100 pips. Being the only one to get stopped out during the biggest eur downtrend in years is quite a feat. Proud of myself 🙄

Peter

ADDED: Not to worry, I still have one good foot on the other leg.

I guarantee Gordon would exchange this foot-shooting experience of yours with his "bigoted woman" moment.

 

[N Rothschild]

So if you're bearish, you get short by buying the put then start to buy back the delta once spot has moved sufficiently in your favour?

This would have worked quite nicely this week, aside from the fact that spot has moved, implied vols have exploded.

what? syhthetics is buying/selling the underlying market and using calls/puts to hedge that posistion. entire thread has been about this....

if your bearish you sell the underlying and buy calls

 

[meanreversion]

sell underlying and buy calls = buying puts

 

[N Rothschild]

Re: Hedging with option

Example of shooting self in foot:
I had a eur short this morning and got stopped out right before eur lost 100 pips. Being the only one to get stopped out during the biggest eur downtrend in years is quite a feat. Proud of myself 🙄

Peter

ADDED: Not to worry, I still have one good foot on the other leg.

this is exactly what happens with stops!

 

[N Rothschild]

sell underlying and buy calls = buying puts

no it = synthetic puts.

 

[meanreversion]

The payoff profile is the same, if you want to call it synthetic that's fine.

Put call parity ... buy call and sell put with same strike equals going long the future

 

[N Rothschild]

options expire..so the profile isnt the same.

im ****nig shattered havnt got time to ****ing debate pointless crap

 

[meanreversion]

If only ODT were here to give us the definitive answer.

 

[N Rothschild]

yowzer, copper about to turn green after being 5% in the red!

 

[meanreversion]

what a beast, making nat gas look pedestrian

 

[N Rothschild]

800 tick round trip lol

 

[meanreversion]

pip size is bigger down here. it's like aud/usd on steroids.

 

[meanreversion]

gold was fairly violent there as well. suspect nat gas will spaz out tomorrow over the data.

 

[N Rothschild]

nat gas is gona explode, but which way

due to this oil spill, all the offshore drilling is gona be in danger how, which means people could look to natural gas again to be the future of energy, so certainly a bullish case right there

 

[meanreversion]

mebbe. my system has me short, could be a choppy ride tomorrow.