Hedging big overnight moves?

[luckyd1976]

Quote from heech:

That's not at all right, actually. I expect this position to be a loser, on average.

This is only one leg of a larger strategy. I'm thinking of using this straddle as a hedge for other positions I'm holding, positions that are hurt by large overnight moves.

So, I'm not expecting to use this leg for returns... it's something that's negatively correlated/contrary to the rest of my strategy, help dampen the volatility.

gotcha,

balancing out the book?

 

[spindr0]

This is only one leg of a larger strategy. I'm thinking of using this straddle as a hedge for other positions I'm holding, positions that are hurt by large overnight moves.

So, I'm not expecting to use this leg for returns... it's something that's negatively correlated/contrary to the rest of my strategy, help dampen the volatility.

I get what you;'re trying to do. FWIW, I trade pairs heavily (long stock against short stock). In broad strokes, it's a similar idea. The advantage to stock over options is that there's so much less slippage and no hassle with lower delta. But this is about you...

I'm laboring the point but... I'd suggest that you look for a strangle that might be more OTM and just keep in in place as catastrophic insurance. Accept a somewhat wider loss range and save a bundle on daily in/out trading.

One of the things that I do is to shift my hedge bias during the day. If I feel the legs are going up, I add to the long side or reduce the short side, never getting too far from neutral (and vice versa if they're going down)... flattening out to neutral by the end of the day. The idea is to try to trade within the trade rather than add another losing side to it.