Most of what you understand is right but since you are buying a put below the market. You wont be hedging 37k worth of qqq risk. More like 70 to 75 percent of it. Look at delta. If you buy deep itm put then that would have been right.
A most basic question about the most basic of options
- Thread starter SoyUnGanador
- Start date
Most of what you understand is right but since you are buying a put below the market. You wont be hedging 37k worth of qqq risk. More like 70 to 75 percent of it. Look at delta. If you buy deep itm put then that would have been right.
"Right" in what sense? The deeper ITM you go, the more it will cost you. What would be the point to paying that extra premium? If you're going to make a claim like that, then try to explain your rationale behind it.
As to delta, it's not the only driver here. A 300d QQQ 380 put costs ~$31 right now, meaning the IV is ~.23; if it tanks by 100 points tomorrow, and the IV (being inversely correlated) goes to 1, the price will be around $171. So he loses $10k on the stock, but gains $14k on the put.
Opinion time (worth what you paid for it, etc.):
Since he's trying to hedge stock, doing it with a single option - which does not move 1:1 with the stock - doesn't make a whole lot of sense unless there's some other reason to do so. Shorting stock, synthetic short stock (-C +P), or futures - QQQ is highly correlated to /NQ, and /MNQ lets you hedge the precise amount you want - neutralizes the delta you want and stays locked to the stock.
The initial problem is that the OP thinks you can get a cheap deal on crash protection (oh, and one that has simple hedging dynamics, too) by buying a put. You can't. If you could, that would be an arb opportunity - and everyone would take advantage of it.
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What claim did i make? Just go back and re read op's original post - the first three paragraphs. He is asking about basic option mechanics. And that is what i said he is right about. I have not made any claim. Chill dude; no intent to start a pissing contest. Just trying to encourage and help the op.
And i agree with you there is no cheap deal when hedging. Its all fairly priced - one way or another. And if you want 100% hedge even shorting qqqs is not good enough. You still have basis/correlation risk. Only true hedge is to get out of the position or part of the position as needed.
Peace!
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I'm curious: did you fail to understand what you yourself wrote, is your reading comprehension so poor that responding to a specifically-cited part of what you wrote still doesn't clue you in, or did your insecurities flare up so badly at being called out for making a random claim that they totally hijacked your thinking facilities?... dude? Knowing which combination of the three it is would be useful to anyone looking at your "advice" and understanding who they're dealing with as a "derivative trader" (although that term alone should be enough of a clue
) and "founder" of the sandwich shop/car wash/ice cream stand/"fund" that you're running. It's worth noting that neither the Canadian Securities Administrators nor the BCSC have ever heard of you or your company...I'll repeat, for the hard-of-reading: your claim of "If you buy deep itm put then that would have been right" makes no sense as stated. If you actually have a rationale for saying this, you should try to explain it.
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Thank you, 8 days later, to post a disclaimer that EVERY SINGLE PERSON ON THIS FORUM has seen in their lifetime.
OY!
Hey, if nobody tells you to buy low and sell high, you might get it backwards. For example, I still sell high and buy low once in a while...