I do have separate accounts at two different firms. Not for that reason, but it is a nice extra bit of insurance. I don't know if I'd have an account only for that reason. You have to keep it funded, and if it's to hedge millions of dollars worth of positions, that is not a small chunk of change to tie up. If my platform goes down, I can always call in orders.
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Grinding it out, day after day
- Thread starter lescor
- Start date
Quote from coolweb:
Look here scooby doo, hedging on the ES because its simple & fast to secure a large position because you don't want to sell it. You just want protection against downside, but not to sell the holdings. Liquidity is diffferent in stocks, when you sell it, you might not be able to get back in later with the same amount at near value prices.
exactly right there, shaggy.
the point I was trying to make. lescor "hedges" with spys out of convenience... it is no strategic advantage over closing out part or all of an open stocks position.
if a trader makes $100,000 on long stocks and loses -$40,000 on a hedge, all they did was deleverage 40% of the open position with an offset. for whatever reason(s) they chose to deleverage size, that's the way they managed it.
closing out 40% of the open long position would have accomplished the same thing in hindsight. but the beta = gamma factor comes into play at the time, and it's easier to manage lots of brushfires with a 2" hose rather than sprinkler can on each little flame. when lescor has multi-positions rolling thru the p&l scale, I'd imagine it's easier to freeze gains with a spy spread rather than total stocks dump
Quote from ammo:
he can also remove that hedge for a second or 3rd leg of a rally,that u werent sure would continue after the 2 hour lunch doldrums, rather than open and close several stock positions
yes, convenience sake of management
I've had countless traders (thru the years) ask me how they can hedge every open intraday trade with options or ishares to limit risk while leaving favorable leverage intact. It's basic human logic to assume there are ways to cap negative leverage while preserving positive leverage unscathed.
Reminds me of the FX brokers that promote opening a second currency position opposite the first to "hedge" over a weekend. i.e. already long the eurusd from x and now short the eurusd at y on Friday evening to preserve the initial long with no weekend risk.
It's the exact same thing as closing the first long and reopening again on Monday. There is zero difference. Try explaining that concept to many FX traders... their eyes will roll like a slot machine :>)
Last post I have on this topic here. Not to clutter lescor's thread... just an observation that they way he "hedges" open positions is purposeful for him, not everyone.
i think you guys are missing the point. hedging with the spy's may occur when one's net is at 0. The attempt is not to lock in 0 profits. The hedge is to try to take away market risk. Hopefully all the stocks come back to fair value like a rubber band.
you want that rubber band to snap back regardless if the market goes up or down.
you want that rubber band to snap back regardless if the market goes up or down.
I can at least see 2 advantages of a quick hedge with SPY:
1. there are still more room for the positions in the stocks to move in your favor, and it is not time to close it yet. However if you already had good profits in the existing position you do not want market movement to take them away from you. so you can do a quick and dirty ballpark hedge with SPY to "lock-in" existing profits and let your positions in individual stocks to run a bit further. If buying power is a big concern, I guess e-mini will do the same trick.
2. it taks time to unwind positions in individual stocks, especially when some of them are not very liquid. so first hedging the net sum of all individual positions, and then one by one unwind the positions in each stock as they run their course of RTM. when a stock position is unwound, you can then unwind the corresponding hedging SPY position at well. This allow you to get the best exit without worrying too much about exposure to market movement.
A beta based market model only explains a small portion (less than 30-40%) of individual stocks movement. Stocks do not move in locked step with SPY, even after taking beta into account. Especially in the early AM hours, when you build you position, the stocks behave in a more idiosyncratic manner.
njrookie
1. there are still more room for the positions in the stocks to move in your favor, and it is not time to close it yet. However if you already had good profits in the existing position you do not want market movement to take them away from you. so you can do a quick and dirty ballpark hedge with SPY to "lock-in" existing profits and let your positions in individual stocks to run a bit further. If buying power is a big concern, I guess e-mini will do the same trick.
2. it taks time to unwind positions in individual stocks, especially when some of them are not very liquid. so first hedging the net sum of all individual positions, and then one by one unwind the positions in each stock as they run their course of RTM. when a stock position is unwound, you can then unwind the corresponding hedging SPY position at well. This allow you to get the best exit without worrying too much about exposure to market movement.
A beta based market model only explains a small portion (less than 30-40%) of individual stocks movement. Stocks do not move in locked step with SPY, even after taking beta into account. Especially in the early AM hours, when you build you position, the stocks behave in a more idiosyncratic manner.
njrookie
Quote from dumguy45:
i think you guys are missing the point. hedging with the spy's may occur when one's net is at 0. The attempt is not to lock in 0 profits. The hedge is to try to take away market risk. Hopefully all the stocks come back to fair value like a rubber band.
you want that rubber band to snap back regardless if the market goes up or down.
I can see where you might want to keep your level of market risk constant. Say you're running a strategy where you want to buy all the x year new highs in the Russell 3000. You could own thousands of stocks at one point, but you still want to be market-neutral. And it changes day to day as the individual positions trigger or from the p/l.
+29k for the week, 840,000 shrs traded. Daily pl +10, +18, +2, -1, 0. Was positioned long for the big move up on Tuesday, and had some long swing positions working nicely and a spread I was able to put on last week with moderate size start to come in.
May was my third best month of all time at $330,000 gross on 4.8M shares. All my main strategies were green for the month and produced well above average numbers. Haven't had two six figure days since Oct '08, which is my best month ever (Sept '08 is #2).
Sitting just shy of 500 net for the year. 7 figure year might be possible if vix doesn't collapse and stay flat the rest of the year, but I'm not thinking about that yet.
May was my third best month of all time at $330,000 gross on 4.8M shares. All my main strategies were green for the month and produced well above average numbers. Haven't had two six figure days since Oct '08, which is my best month ever (Sept '08 is #2).
Sitting just shy of 500 net for the year. 7 figure year might be possible if vix doesn't collapse and stay flat the rest of the year, but I'm not thinking about that yet.