Hedging Futures to avoid big losses

impravinw · Dec 21, 2018

After doing thorough analysis, I bought these future contracts of 6 companies (single contract of each). These are trending stocks so I'm not planning to quit it in short term but now I'm facing typical challenge with daily MTM(mark to market) Profit & Loss. Through the week these futures were bullish and end of the week suddenly the market collapse and it gave up entire profit and entire portfolio position has become negative. I've thought about couple of hedging strategies like buying PUT options or Shorting next month's future. But somehow I'm not convince with all the strategies as option are depreciating (as future price goes up) and also not sure till the time future price actually drops the option will actually play a significant role as hedging tool. And problem with shorting future is it lock the trade. Eventually everything just boils down to adding more cost.
Can someone pls suggest any hedging strategy wherein I can at least lockin my existing eod profit?

Scataphagos · Dec 21, 2018

impravinw said:
After doing thorough analysis, I bought these future contracts of 6 companies (single contract of each). These are trending stocks so I'm not planning to quit it in short term but now I'm facing typical challenge with daily MTM(mark to market) Profit & Loss. Through the week these futures were bullish and end of the week suddenly the market collapse and it gave up entire profit and entire portfolio position has become negative. I've thought about couple of hedging strategies like buying PUT options or Shorting next month's future. But somehow I'm not convince with all the strategies as option are depreciating (as future price goes up) and also not sure till the time future price actually drops the option will actually play a significant role as hedging tool. And problem with shorting future is it lock the trade. Eventually everything just boils down to adding more cost.
Can someone pls suggest any hedging strategy wherein I can at least lockin my existing eod profit?

If your play has moved enough in your direction, you can place a trailing stop. Until then, there is still some risk and cost.

impravinw · Dec 21, 2018

Scataphagos said:
If your play has moved enough in your direction, you can place a trailing stop. Until then, there is still some risk and cost.

I agree with you but I've a challenge in managing all the positions in real time. Also call it my inexperience I have difficulty in judging the appropriate level to exit. So any thoughts on the same?

Scataphagos · Dec 21, 2018

impravinw said:
I agree with you but I've a challenge in managing all the positions in real time. Also call it my inexperience I have difficulty in judging the appropriate level to exit. So any thoughts on the same?

1. Placing stops is partly "art".

2. Any reasonable stop is better than none. Can't survive without them.

tomorton · Dec 21, 2018

And later, it might be healthy to review what sort of strategy tells you to buy into stocks in a (still) falling market.

Handle123 · Dec 21, 2018

impravinw said:
After doing thorough analysis, I bought these future contracts of 6 companies (single contract of each). These are trending stocks so I'm not planning to quit it in short term but now I'm facing typical challenge with daily MTM(mark to market) Profit & Loss. Through the week these futures were bullish and end of the week suddenly the market collapse and it gave up entire profit and entire portfolio position has become negative. I've thought about couple of hedging strategies like buying PUT options or Shorting next month's future. But somehow I'm not convince with all the strategies as option are depreciating (as future price goes up) and also not sure till the time future price actually drops the option will actually play a significant role as hedging tool. And problem with shorting future is it lock the trade. Eventually everything just boils down to adding more cost.
Can someone pls suggest any hedging strategy wherein I can at least lockin my existing eod profit?

I been hedging futures since the 1990s, only way I could find a way to play the game profitable as ways I do trade are always going against the trend whether entries off 60 minutes to weeklies and using monthlies in equations. I won't go into the guts of what I do as taken me decades to get right, but I use options/futures as hedges for futures and stocks/etfs on entries for up to 8 days. Entries show greatest risk and since my losing percentages are huge, found ways to breakeven. Once I get underlying to certain percentages, breakeven stops are used and never touched unless automation reverses, I have over a dozen patterns for topping/bottoming, instead of exiting positions, system will apply hedging of open profits plus 100% more so as to make a profit going down. If underlying hits breakeven stops, position is out and starts to look for patterns to get back in at better prices which might takes hours or months. Profitable trades seldom ever come back after certain percentages. I am not a swing trader, so I don't ever use trailing stops. I am still long all my stock positions and short futures for hedges and profit seeking, stocks continue to pay dividends.

Unless you get out, there is no way to lock in profits that I know.

impravinw · Dec 22, 2018

tomorton said:
And later, it might be healthy to review what sort of strategy tells you to buy into stocks in a (still) falling market.

Actually these are bullish stocks and are in trend (as per Monthly chart). Past 3-4 trading session (since buying) these scripts were going up but then suddenly yesterday the broader index collapse; these scripts gave up & suddenly went below the buying price. it was unexpected.

tomorton · Dec 22, 2018

impravinw said:
Actually these are bullish stocks and are in trend (as per Monthly chart). Past 3-4 trading session (since buying) these scripts were going up but then suddenly yesterday the broader index collapse; these scripts gave up & suddenly went below the buying price. it was unexpected.

Of course I accept they were bullish in their own right or to your credit you wouldn't have bought them.

But the broader market has been falling like debris raining from a burning building for weeks and weeks. That represents smart money (i.e. bigger money than ours) being pulled out of equities as they are currently rated as too high risk to hold any longer. The stock exchange building is burning down and you have pulled over to the kerb and run in there to pick up some bargains on your way home. And now you say, but they were great bargains and you did just the right thing and then you were so unlucky.

Good luck with that strategy.