Do *you* hedge against a total *intraday* market crash?

[giggollo]

Quote from SideShowBob:

I use way out of the money puts (futures option puts) to hedge overnight longs, but I guess they could also hedge intraday crashes. I mean way out of the money, for example now I'm holding ES 1180 puts. Not a perfect hedge...but better than a stick in the eye....

For you and anyone else who does hedge (and there are very few it seems), can you tell us how you:

1. determine strike price, expiration date,
quantity and date you will purchase the puts on a rolling basis ?

2. I assume you are losing the premium on a continuous basis since there is no crash, do you just consider those losses simply the "cost of doing business"?

 

[Hamlet]

Quote from giggollo:

Does anyone here hedge against a total intraday market crash a la 1987. If so, how do you hedge? If not, whats your logic in not hedging, and especially if you are using leverage?

If you are an intraday trader you have no business trading at all if you think you need a hedge against an extreme intraday move. I am actually confused about why you would think a daytrader would ever concern himself with hedging against an extreme move rather than hoping that one would occur so that he can jump all over it! Perhaps you are new?

 

[newbunch]

Quote from SideShowBob:

I use way out of the money puts (futures option puts) to hedge overnight longs, but I guess they could also hedge intraday crashes. I mean way out of the money, for example now I'm holding ES 1180 puts. Not a perfect hedge...but better than a stick in the eye....

What percent of assets does that cost you per year?

 

[SideShowBob]

I buy one put for each futures contract I'm holding long. I go for ES about 100 points out of the money although I'll adjust that depending on the prices. It usually costs about a point or two each. Once a month that's about $75-100 per contract, or $1000 - $1200 a year per contract. It's pretty much a guaranteed loss....but if a 9/11 type of event occurred I'd be glad I had it. Of course it only works if you're making enough money that it's a small percentage of your gains. So far I am...but you never know. Also note that once the current month expires I don't buy again until I'm holding longs overnight...which might be another week or two.

Probably not the best hedge but until I can figure out a better way it'll have to do. I've considered using spreads to somehow lower the cost but I've never found a good way that would leave me with the same protection. I'd definitely be interested in hearing suggestions.....

 

[giggollo]

Quote from SideShowBob:

......

Probably not the best hedge but until I can figure out a better way it'll have to do. I've considered using spreads to somehow lower the cost but I've never found a good way that would leave me with the same protection. I'd definitely be interested in hearing suggestions..... [/B]

Have you experimented with buying an out of the money put like you do and selling an out of the money call too so that your net cost is zero on the options. Your long positions (futures or stocks) should gain if theres a really sharp rally to limit the loss on the call that you're short. Theoretically, most of the time, this would create a costless downside hedge or lower your hedging costs at least if the market is rangebound, trending up slowly or trending down. Ive never tried it but would like to hear from anyone who has

 

[giggollo]

Quote from Hamlet:

If you are an intraday trader you have no business trading at all if you think you need a hedge against an extreme intraday move. I am actually confused about why you would think a daytrader would ever concern himself with hedging against an extreme move rather than hoping that one would occur so that he can jump all over it! Perhaps you are new?

Thanks for your reply, Hamlet.

I am an intraday trader, but i dont know how to "jump all over it" and cash in big when theres a market crash. Can you please tell me specifically how to do that?

 

[SideShowBob]

Quote from giggollo:

Have you experimented with buying an out of the money put like you do and selling an out of the money call too so that your net cost is zero on the options. Your long positions (futures or stocks) should gain if theres a really sharp rally to limit the loss on the call that you're short.

Not a bad idea, I'll definitely look into it thanks. I don't mind a net debit (since it's what I've already been using) but I'll have to price out your idea (using the IB historical bid/ask data). Definitely worth exploring, even if I have to get more of a debit by buying a further out of the money call to limit my risk in case they catch Bin Ladin (or defrost him if you believe in the conspiracy theories )

SSB

 

[William Rennick]

Quote from giggollo:

Have you experimented with buying an out of the money put like you do and selling an out of the money call too so that your net cost is zero on the options. Your long positions (futures or stocks) should gain if theres a really sharp rally to limit the loss on the call that you're short. Theoretically, most of the time, this would create a costless downside hedge or lower your hedging costs at least if the market is rangebound, trending up slowly or trending down. Ive never tried it but would like to hear from anyone who has

Very similiar to one of my favorite trades. Wait for a mid-east holiday then short that month's live hogs, and go long the next months pork bellies. The rational is that there is a glut of pork due to various religious customs, so there's all kind of fresh pork they need to move, which gets sold as bacon to the eager American, and European consumers. I modestly call this trade "the Rennick"

 

[danoXP]

Quote from Buy1Sell2:

I question whether there any gaps anymore except on Sunday nights.

My friend. You just haven't seen one yet. And, just make sure that when you do ... it is not your last.

... when it comes, and you are watching, it may look like this:

You are watching TWS IB trading ES during the day. Nice tight spread of the usual 1 tick.

Stop order protecting your position.

All of a sudden Globex halts trading ES.

The Bid, Ask, and LAST turn light blue.

You notice also the NYSE stocks are out also. Then the Nasdaq stocks stop trading also.

Something has happened?! ... then the news comes over CNBC "... ... "

... the bids, asks dissapear.

 

[William Rennick]

Quote from danoXP:

My friend. You just haven't seen one yet. And, just make sure that when you do ... it is not your last.

... when it comes, and you are watching, it may look like this:

You are watching TWS IB trading ES during the day. Nice tight spread of the usual 1 tick.

Stop order protecting your position.

All of a sudden Globex halts trading ES.

The Bid, Ask, and LAST turn light blue.

You notice also the NYSE stocks are out also. Then the Nasdaq stocks stop trading also.

Something has happened?! ... then the news comes over CNBC "... ... "

... the bids, asks dissapear.

What the hell, a riviting post.!!What happens next,??? Better than a Stephen King thriller. BRAVO,BRAVO

...Rennick