Conservative position, using itm puts to hedge

A

arthanos

I might be missing something here, in fact I'm pretty sure I am, so if you can shoot some holes in this, please do!

What if someone wants to protect his capital and just get a moderate return on it (and no, bonds are no option here, europe).
Would it be an option to just go long QQQ for example, and get DITM yearly puts as a hedge?

Looking at some numbers here, the QQQ 205 put expiring in DEC has just 1.29% annualized timevalue and 77 delta, and QQQ would need to rise about 7something % to be profitable.
So pretty much almost no downside risk, and plenty of upside potential.

Looking at historic QQQ returns this would have worked out great, to put these positions on during a dip or something.

What am I missing, I am unable to backtest this so I have no idea if this would have worked out historically, are options simply that cheap now that this looks appealing?
 
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arthanos said:
I might be missing something here, in fact I'm pretty sure I am, so if you can shoot some holes in this, please do!

What if someone wants to protect his capital and just get a moderate return on it (and no, bonds are no option here, europe).
Would it be an option to just go long SPY for example, and get DITM yearly puts as a hedge?

Looking at some numbers here, the SPY 205 put expiring in DEC has just 1.29% annualized timevalue and 77 delta, and SPY would need to rise about 7something % to be profitable.
So pretty much almost no downside risk, and plenty of upside potential.

Looking at historic SPY returns this would have worked out great, to put these positions on during a dip or something.

What am I missing, I am unable to backtest this so I have no idea if this would have worked out historically, are options simply that cheap now that this looks appealing?
More...
Recommend you reread your post, then revise to what you "intended" to post. -- SPY is currently around 290, a DITM PUT would > 290! (not 205) -- Did you mean 305?
 
arthanos said:
I might be missing something here, in fact I'm pretty sure I am, so if you can shoot some holes in this, please do!

What if someone wants to protect his capital and just get a moderate return on it (and no, bonds are no option here, europe).
Would it be an option to just go long QQQ for example, and get DITM yearly puts as a hedge?

Looking at some numbers here, the QQQ 205 put expiring in DEC has just 1.29% annualized timevalue and 77 delta, and QQQ would need to rise about 7something % to be profitable.
So pretty much almost no downside risk, and plenty of upside potential.

Looking at historic QQQ returns this would have worked out great, to put these positions on during a dip or something.

What am I missing, I am unable to backtest this so I have no idea if this would have worked out historically, are options simply that cheap now that this looks appealing?
More...
Your position is synthetically equal to just buying the Dec 205 call so you don't need the stock and put.
 
Dolemite said:
Your position is synthetically equal to just buying the Dec 205 call so you don't need the stock and put.
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I am aware of that but it's a better idea to have cash in various stock indexes that are hedged than in moneymarkets with a negative interest rate...
 
arthanos said:
I am aware of that but it's a better idea to have cash in various stock indexes that are hedged than in moneymarkets with a negative interest rate...
More...

It's synthetically equivalent to a long call. Do you see where the risk is?
 
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