Hedge 'n Hold

Quote from patefern:



Sell the April 17.50 calls, sell the April 17.50 puts, buy the April 20 calls, buy the April 15 puts, same quantities. If price decreases buy back some of the short 17.50 calls. If price increases buy back some of the short 17.50 puts. Move out to July at expiration, than October etc. selling the ATM strikes and buying the OTM calls/puts.

Good use of capital, avoiding disaster, time decay in your favor. You can tweak this position a little if you want to own the stock.
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Looks like a moving Iron Butterfly! :D

Great strategy!

kp
 
Quote from abishiai:

This is an experiment to see if the Hedge 'n Hold strategy of using stocks and options will work over the course of a year.

Trades in this thread will be 'paper' trades, and I am starting with $10,000.

This plan is simple. Hold the stock. If price increases, re-adjust the puts to lock-in profits. If price decreases, then sell puts, and buy more stock, then re-hedge with more puts.

Today I am opening these positions:

Long 800 ELX @ 17.85, w/50% margin: $7,290.00
Long 8 ELX Apr 15 Puts @ .70: $570.00
Cash balance: $2,285.00

I've 'back tested' this system, and it seems to work very well. However it is difficult to calculate accurate option prices when back-testing since they are not available.

Cheer,

kp
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I play ELX... have positions right now in fact. So let me ask you.. how much hedge do you understand is afforded by 4/15 puts? Do you have upside/downside targets on underlying... if so, what r they ?

What if ELX slowly trades back to 15.25 by 4/18.. or only trades to 18.55.

Broker and put seller have all the marbles....

Or do you intend to sell April calls on any large move to a ST target... or sell the stock and hold puts. Or some other options stratagy.

I'm curious when you say it "works very well" what works about said strategy... for example?

Regards,
Ice :cool:
 
Quote from iceman1:



I play ELX... have positions right now in fact. So let me ask you.. how much hedge do you understand is afforded by 4/15 puts? Do you have upside/downside targets on underlying... if so, what r they ?

What if ELX slowly trades back to 15.25 by 4/18.. or only trades to 18.55.

Broker and put seller have all the marbles....

Or do you intend to sell April calls on any large move to a ST target... or sell the stock and hold puts. Or some other options stratagy.

I'm curious when you say it "works very well" what works about said strategy... for example?

Regards,
Ice :cool:
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My strategy is to hold the stock and puts through to expiration. If, in the meantime, we get a HUGE drop in ELX (like down to around $10), then I would sell the puts, buy more stock and buy the 7.50 puts.

On the other hand, if we continue this current uptrend, I will re-hedge (like I did today) every time I can buy $2.50 more of protection for $.50-.60.

At April expiration, I will continue to hold the stock and buy May puts one or two strikes out.

For this to work, ELX needs to be volatile, which it has been over the past couple years. A move up to about $25, and then a correction down to $15 would pay very well. With the impending war, I think the market will be quite volatile, but I don't know which way it is going to go, but I am a bit bullish on it, so I went long rather than short.

Cheer,

kp
 
Quote from abishiai:



My strategy is to hold the stock and puts through to expiration. If, in the meantime, we get a HUGE drop in ELX (like down to around $10), then I would sell the puts, buy more stock and buy the 7.50 puts.

On the other hand, if we continue this current uptrend, I will re-hedge (like I did today) every time I can buy $2.50 more of protection for $.50-.60.

At April expiration, I will continue to hold the stock and buy May puts one or two strikes out.

For this to work, ELX needs to be volatile, which it has been over the past couple years. A move up to about $25, and then a correction down to $15 would pay very well. With the impending war, I think the market will be quite volatile, but I don't know which way it is going to go, but I am a bit bullish on it, so I went long rather than short.

Cheer,

kp
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IF it goes to 25 during the next 4 weeks ... I will buy you dinner in Vegas There is strong TL resistance at about 20! IF it breaks I will add on... or sell puts.

Did you see the comments by their CEO recently?

I posted them on (Market) surfer's Journal.

G'luck

Ice
:cool:
 
Quote from iceman1:



IF it goes to 25 during the next 4 weeks ... I will buy you dinner in Vegas There is strong TL resistance at about 20! IF it breaks I will add on... or sell puts.

Did you see the comments by their CEO recently?

I posted them on (Market) surfer's Journal.

G'luck

Ice
:cool:
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Yum! :D

Now that I think about it, I do remember seeing your post about the ELX chairman. I must confess I don't pay any attention to news. I just assume the market will have already digested the news by the time I hear it, so why worry about it?

My only reason for being bullish on ELX right now is that VIX hit 40 several days ago and I think everything is headed up here for a bit. When it turns around and heads back down, I'll have my profits locked in. :cool:

Prosper!

kp
 
Quote from abishiai:

Thanks for all the comment and evaluation of this position / strategy.

My primary reasons for not just buying the calls outright is that I HATE the bid/ask spread in options and I don't like time decay.

The problem with just buying a call is that it will expire in April, and I will have to buy another one then, That means every month I will lose the bid/ask spread on the call for my long positioni, AND if and when it moves in my favor, I have to do the same thing again when I hedge the position to lock-in profits.

Cheer,

kp
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Interestingly, you hate the bid/ask spread and the time decay in the calls but not the puts? That wouldn't make sense now, would it. Also, if you are willing to roll the puts up or down in strikes and further back in months as they expire, you should be willing to do that with the calls as well.
There is nothing wrong with your strategy, my only point was that your effective position, when you own puts and stock in an equal ratio, you own a synthetic call, and as such might as well just own calls that you would roll up and down in strikes and further back in months. The P&L is the same (ignoring specials like early exercise etc) but you use less money to put the position on.
cheers from the giro-leader
 
Today I'm making the following trade:

B: MAY 20 Put @ .95: -$770.00, $10 comm.

My net position now is:

Long: ELX 800 Shares
Long: ELX 8 APR 17.5 Puts (Will doubtless expire worthless)
Long: ELX 8 MAY 20 Puts
Cash Balance: $1,055.00

I will sell my May 20 puts and buy the 22.50s when I can do it for a net .50.

Cheer,

kp
 
Quote from abishiai:

As you said it, time decay is the reason.

I haven't done very well with strangles, but I'll admit I haven't done any as you suggested: OTM puts, ATM calls.

This is a strategy I have looked back on time after time and though "if only I had just held that stock..." So, I'm trying it out here.

Thanks for the input. :)

kp
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Sell them ...
 
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