E-mini protection using puts

KTM is referring to correlation-risk, not scale. One OEX put will adequately hedge one ES contract, provided you're satisfied with losing until you reach the strike[-]premium paid. You'll likely lose less than "spot - strike" as the vols will go crazy to the upside.

The oex and spx are running a 98% correlation. SPX options are a 100% corr, as are the big SP futures options.

1:1 OEX to ES
1:2 SPX to ES
1:5 SP to ES

You can always buy VBI futures as well. It's a large-contract. A dramatic terror-strike could see vols rise to 100. VBI are $1000 per handle.
 
Quote from stephenszpak:

Have there ever been any threads about:

Protecting a E-mini S&P 500 contract using
OEX puts? Were assuming this would be
protection against a significant and un-
expected calamity.

How far out of the money? How
many points does the futures contract have
to go down before one breaks even with
the rising value of the put? How many puts
per contract? etc.

Any ballpark estimates here are fine, for today.

Thanks all,

Stephen Szpak
More...

The ES options or SPX options are better correlated.

ES options at full value are .5 delta the same as ES- 50 per point.

SPX options at full value are 1 delta- 100 per point, meaning 2 ES = 1 SPX.

This position is a synthetic straddle meaning that it usually grows in either direction because of the gamma in the option.

The downside is the theta and b/a spreads. Further ITM= less theta and more spread while OTM = more theta and less spread.
 
riskarb

Something lost in tranlation.

All I got was:


"""One OEX put will adequately hedge one ES contract"""

So what does one actually do when day trading? Buy a
at-the-money (far out of the money) put at the beginning
of the day to protect the long futures contract, then sell
the put before days end.

Stephen Szpak


KTM is referring to correlation-risk, not scale. One OEX put will adequately hedge one ES contract, provided you're satisfied with losing until you reach the strike[-]premium paid. You'll likely lose less than "spot - strike" as the vols will go crazy to the upside.

The oex and spx are running a 98% correlation. SPX options are a 100% corr, as are the big SP futures options.

1:1 OEX to ES
1:2 SPX to ES
1:5 SP to ES

You can always buy VBI futures as well. It's a large-contract. I dramatic terror-strike could see vols rise to 100. VBI are $1000 per handle.
 
In my experience you are always better to hedge with what you are hedging. I mean that if you want to hedge ES use ES options. Otherwise your are really making another trade and are likely to end up with a Chinese hedge. Is there any reason why you do not want to use ES options?
The other thing that you want to watch out for is picking the right strike price on OEX options to hedge a long ES position. Because ES is a September contract there is an interest rate component that means the strikes are not like for like.
I think the only to come to a complete hedge is to buy the right ratio of puts to get the right average strike price and then use a eurodollar spread to hedge your interest rate exposure. Could somebody critique this thinking.
 
zf trader


In my experience you are always better to hedge with what you are hedging. I mean that if you want to hedge ES use ES options. Otherwise your are really making another trade and are likely to end up with a Chinese hedge. Is there any reason why you do not want to use ES options?

Careful, I'm ignorant. I didn't know ES options existed.
(not kidding)

Setting aside the:

" then use a eurodollar spread to hedge your interest rate exposure"

Would 1 at-the-money put per 1 long E-mini S&P 500
futures contract make sense here?

Perhaps a put 20 points out-of-the-money would be
more cost effective?

Then...sell the put at the end of the day regardless
of what the market did????

Thanks for any input, (anyone)

Stephen Szpak
 
Quote from ktm:

Actually these types of doomsday scenarios are not practical as a matter of history. I have heard numerous reports since the London bombings about historical drops after bombings and terrorist incidents. The only market that was lower a year later was France during WWII. Most others recover within a month or two, if not before...most of the time within days. Once people realize two things, the market bounces back. People need to believe that consumers will continue to go about their daily lives, spending and working and consuming etc... the second thing is that the intrinsic value of corporations was not greatly effected by the incident.
More...
Two points

(1) If you are heavily leveraged in something like futures the fact that the market will bounce back in a month is not any comfort - if you get a margin call the next day after the big event then you need to come up with the money right away, you can't tell your broker to sit tight and wait for the market to recover. I believe that is what the OP is asking for (crash protection)

(2) In terms of historical comparisons, how many times in the past has a fairly large sized nuke gone off in NYC or a biological agent been deployed in a major US city that killed millions? These are real possibilities and not doomsday scenarios. There are potential events that will impact the country economically, not just psychologically. A nuke going off in NYC will not spell the end of the American economy but I sure bet it will put a serious damper on it. I really hope it doesn't happen but honestly I'm surprised it hasn't already considering how much hatred towards the US is out there.
 
riskarb

One OEX put will adequately hedge one ES contract, provided you're satisfied with losing until you reach the strike[-]premium paid.

The put would be for disaster protection only.
Disaster meaning, a terrorist attack on Washington,
to absoluety no phone service (wire or wireless)
do to a hacker playing, or for any reason.

Another trader says he uses 1 point stops. I would be
using 1 or 1 1/2 point stops ( current thinking ) on the
E-mini futures, and trading them as if I had no put
option.

Stephen Szpak
 
One ES put will hedge one ES contract. Make sure that the options contact exercises into the month you have the long future. ES options do not trade very much but they are pretty easy to arb so if you split the spread you should get a fill.

As far as selling at the end of the day goes it depends on your style. I really like to trade overnight futures with the protection of an option and then use the volatility of the cash open to sell my option at a profit. I think you will find the overnight market as a good place to start because the small moves and the tendency of the market to retrace itself.
 
winter

if you get a margin call the next day after the big event then you need to come up with the money right away, you can't tell your broker to sit tight and wait for the market to recover. I believe that is what the OP is asking for (crash protection)


Yes, crash protection. Also peace of mind (to some
extent) as I wrote regarding the phone service
comments just now.

Stephen Szpak
 
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