E-mini protection using puts

S

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
 
Actually, would someone pls advise whether this is really a solid insurance?

In a free-falling market, sometimes the futures drop much faster than the shares. So will the futures and their options be out of sync too in a rapidly moving market.

If this is true, then getting an option position may only give us false sense of security of being too aggressive in our futures position.

Any advice?
 
This is one of the things that worry me, what happens if you're say long 10 ES, and terrorists nuke Chicago and Globex goes down?

When the market reopens days, weeks. months? later, ES is cut in half. -600 points times 10 times $50 is 300 large. My house isn't worth that much, but I have insurance on it. A fire or tornado or other catastrophe is very unlikely, but I still pay to be protected from a significant loss.

So I guess the answer is to buy some deep, out of the money options. Not sure how to structure it tho.
 
Quote from TGregg:

This is one of the things that worry me, what happens if you're say long 10 ES, and terrorists nuke Chicago and Globex goes down?

When the market reopens days, weeks. months? later, ES is cut in half. -600 points times 10 times $50 is 300 large. My house isn't worth that much, but I have insurance on it. A fire or tornado or other catastrophe is very unlikely, but I still pay to be protected from a significant loss.

So I guess the answer is to buy some deep, out of the money options. Not sure how to structure it tho.
More...
What about the chances of your now valuable put being honored after this catastrophic scenario? Any thoughts on this?
 
(Don't laugh. I don't know much about trading.)

A number of years ago I came up with something I
called a biased straddle. I displayed a profit/loss
graph of 4 (or 5) calls to 1 put (one could go the
other way round of course). It looks nice on paper.
If the market went up slightly the calls would make
money. If the market went down substantially the
put would make money.

(Anyway...back to futures and protection...one has to
wonder what would happen if the puts bought to
protect the futures contract expire as well, assuming
the market is closed for x days or x weeks and the
options just expire and can't be sold.)

This is where I lack knowledge...basic knowledge...
there is such a thing as being short a E-mini S&P
500 futures contract, correct?

What about 4 (or 5) long contracts and short
1 contract, to create my biased straddle, or is this
impossible.

Regards,

Stephen Szpak
 
If you don't have all your eggs in one basket you can always open an account somewhere else to hedge your ES position with some other instrument. If a catastrophe wipes out all your well-placed eggs, well we're all toast. By the way, how much potential profit are you willing to give up by preparing for very unlikely catastrophies?

Quote from TGregg:

This is one of the things that worry me, what happens if you're say long 10 ES, and terrorists nuke Chicago and Globex goes down?

When the market reopens days, weeks. months? later, ES is cut in half. -600 points times 10 times $50 is 300 large. My house isn't worth that much, but I have insurance on it. A fire or tornado or other catastrophe is very unlikely, but I still pay to be protected from a significant loss.

So I guess the answer is to buy some deep, out of the money options. Not sure how to structure it tho.
More...
 
If a catagory 5 hurricane is 200 miles from your house and
forecasted to come ashore on top of it, I doubt any insurance
company will sell you homeowners insurance. The same with
a price shock to the market. Once it occurs it's already too
late to do anything.

No body likes insurance but one has to have some at least.
How much worrying is healthy or unhealty is the question.

Recently I was told that the E-mini S&P 500 futures contract
was going for $60,000. If one trades one contract only,
this is the maximum loss one can suffer, correct??????

Not wishing to step on anyones toes here,

(We could own some gold bars I guess :)

Regards,

Stephen Szpak


If you don't have all your eggs in one basket you can always open an account somewhere else to hedge your ES position with some other instrument. If a catastrophe wipes out all your well-placed eggs, well we're all toast. By the way, how much potential profit are you willing to give up by preparing for very unlikely catastrophies?
 
Quote from TGregg:

This is one of the things that worry me, what happens if you're say long 10 ES, and terrorists nuke Chicago and Globex goes down?

When the market reopens days, weeks. months? later, ES is cut in half. -600 points times 10 times $50 is 300 large. My house isn't worth that much, but I have insurance on it. A fire or tornado or other catastrophe is very unlikely, but I still pay to be protected from a significant loss.

So I guess the answer is to buy some deep, out of the money options. Not sure how to structure it tho.
More...

I would suggest a closer ratio spread done in such a way that it follows your futures down and compensates you nearly dollar for dollar...but maybe provides a bit of protection for more likely smaller drops as well. We could run some numbers if you are interested.

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.

But for those of you that are interested, options provide a great way to structure protection. I would suggest the same instrument for correlation purposes. ES represents 500 co's whereas OEX is 100 I believe. They can deviate or become less correlated over time and during events, causing your protection to deviate from the original ratios.
 
In the worst case scenario hedge with a futures contract abroad. The dax was open all day on 911, went down 8%. Not sure if americans can trade that but you can trade Hong Kong, Sydney, and Nikkei from Singapore with IB. What about ES options on futures on Globex? We could do with your liquidity! Benefit over the OEX is that margin requirements are SPAN and not REG T.
 
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