N Rothschild
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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!
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!
