about hedging; if you bought 1000 COST at 460 - what amount of puts/strike should you buy to "hedge"

klattermusen · May 26, 2022

about hedging; if you bought 1000 COST at 460 - what amount of puts/strike should you buy to "hedge" correctly?

I'm thinking today for op ex tomorrow and earns tonite...i know it's last minute..thanks

xandman · May 26, 2022

If your talking about hedging a stock, you need (1000 /100=10 deltas).You need as many options to get you to a 10.0 deltas.

That is a perfect delta hedge at time of inception. Or, you can buy 1 put per 100 shares of stock at an arbitrary strike. modeling will show you break evens. Adjust strike level to your taste.

If your just figuring this out and in a rush, then it is best to just close or dial down the size. I am seeing a large amount of people playing with options with zero theory/concepts behind it. Simply seeing strike levels as a price barrier to avoid or penetrate. It won't end well.

klattermusen · May 26, 2022

Thanks. Yes you are right. I have very rudimentary options knowledge. I was hoping there would a basic rule of thumb. I'll look at 10 deltas.

2rosy · May 26, 2022

xandman said:
If your talking about hedging a stock, you need (1000 /100=10 deltas).You need as many options to get you to a 10.0 deltas.

That is a perfect delta hedge at time of inception. Or, you can buy 1 put per 100 shares of stock at an arbitrary strike. modeling will show you break evens. Adjust strike level to your taste.

If your just figuring this out and in a rush, then it is best to just close or dial down the size. I am seeing a large amount of people playing with options with zero theory/concepts behind it. Simply seeing strike levels as a price barrier to avoid or penetrate. It won't end well.

why 10 deltas? How does 1000/100 give deltas?

taowave · May 27, 2022

Your "wording" makes you sound like one of the guys playing with options
with zero theory/concepts..

Long 1000 shares and you need "10 deltas"????

Say WUT???

He needed to get short 1000 deltas,i.e.

10 options/ delta 1.00
20 options /delta .50
40 options / delta .25
100 options /delta .10

Im guessing vol was jacked and the expiring ATM straddle priced in a 5-10 percent move..Just a Hunch,too lazty to look,but with the stock off 2 percent.Hedging(long vol) would have been FUGLY...

xandman said:
If your talking about hedging a stock, you need (1000 /100=10 deltas).You need as many options to get you to a 10.0 deltas.

That is a perfect delta hedge at time of inception. Or, you can buy 1 put per 100 shares of stock at an arbitrary strike. modeling will show you break evens. Adjust strike level to your taste.

If your just figuring this out and in a rush, then it is best to just close or dial down the size. I am seeing a large amount of people playing with options with zero theory/concepts behind it. Simply seeing strike levels as a price barrier to avoid or penetrate. It won't end well.

newwurldmn · May 27, 2022

taowave said:
Your "wording" makes you sound like one of the guys playing with options
with zero theory/concepts..

Long 1000 shares and you need "10 deltas"????

Say WUT???

He needed to get short 1000 deltas,i.e.

10 options/ delta 1.00
20 options /delta .50
40 options / delta .25
100 options /delta .10

Im guessing vol was jacked and the expiring ATM straddle priced in a 5-10 percent move..Just a Hunch,too lazty to look,but with the stock off 2 percent.Hedging(long vol) would have been FUGLY...

OP also didn’t explain what he wanted to hedge. Was he looking to neutralize all directional risk or just downside? Or some partial amount of downside.

klattermusen · May 27, 2022

newwurldmn said:
OP also didn’t explain what he wanted to hedge. Was he looking to neutralize all directional risk or just downside? Or some partial amount of downside.

Since I was long 1000 COST and my fear would be losing money. So yes, downside risk. I'm coming to this from a simple insurance i "hedge" my losses if the stock goes down. I guess I thought there was simple insurance hedge policy.

newwurldmn · May 27, 2022

klattermusen said:
Since I was long 1000 COST and my fear would be losing money. So yes, downside risk. I'm coming to this from a simple insurance i "hedge" my losses if the stock goes down. I guess I thought there was simple insurance hedge policy.

Obviously you don’t want to lose money. How much are you willing to lose and what scenario are you trying to avoid is important in determining the right hedge.

murray t turtle · May 27, 2022

klattermusen said:
about hedging; if you bought 1000 COST at 460 - what amount of puts/strike should you buy to "hedge" correctly?

I'm thinking today for op ex tomorrow and earns tonite...i know it's last minute..thanks

%%
AS good as counter trend as that is\
exit market on close+/ FRI. One lady asked , like ''FRI + 1??''
No; FRI close exit more or less.; for correct , trailing profit................................

Baozi · May 28, 2022

OP are you planning to be long puts in what time frame? Did you consider being short calls? what is in your opinion the worst case scenario in terms of stock movement? You will get conflicting answers if you dont make these elements clear