Hedging Index options

H

HLFinance

I would like to hedge my short index option positions with the underlying, but as i can´t trade an index...

Can anyone tell me an alternative hedge?

Thanks in advance.
 
Do youself a favor and buy to close that position ASAP and go to cash. As a long-term hedge, I would recommend taking up a hobby such as scuba diving, photography, or basket weaving. Never selling another option ever again is the best hedge I can recommend.
 
Quote from HLFinance:

I would like to hedge my short index option positions with the underlying, but as i can´t trade an index...

Can anyone tell me an alternative hedge?

Thanks in advance.
More...

Buying a further out strike option to convert into a vertical spread or trading the index futures.
 
Dunno which index options but there are some liquid index trackers on the eurostoxx if giving up 1 or 2 points isn't a problem you'll be fine. But as a matter of interest where can you trade the options but not the future (unless i misunderstood and you can trade the future)?
 
Quote from MTE:

Buying a further out strike option to convert into a vertical spread or trading the index futures.
More...

I don't like vertical spreads margin req, it grows too fast if the market goes agains you. :(

I prefer covered call option position (if long the market); or covered put option (if short the market).

Any other suggestion?
 
Quote from FGBS:

Dunno which index options but there are some liquid index trackers on the eurostoxx if giving up 1 or 2 points isn't a problem you'll be fine. But as a matter of interest where can you trade the options but not the future (unless i misunderstood and you can trade the future)?
More...

I was refering to dax futures and dax index options.


About the trackers:

Can you give me an example of a liquid tracker and tracker options?

From my experience (not a lot) the tracker options usualy don't have enough value to justify a covered call options strategy. Do you agree?

Thanks
 
Quote from HLFinance:


From my experience (not a lot) the tracker options usualy don't have enough value to justify a covered call options strategy. Do you agree?

Thanks
More...

Dont know of any tracker options just thought you already had the option position and needed to hedge the underlying movement.
Can you trade dax futures? Indexchange does a Dax tracker that does reasonable volume.
 
Quote from HLFinance:

I don't like vertical spreads margin req, it grows too fast if the market goes agains you. :(

I prefer covered call option position (if long the market); or covered put option (if short the market).

Any other suggestion?
More...

You kidding, right!? A vertical has a limited risk no matter what happens, if a covered call goes against you the margin req. will grow as well.

Anyway, I don't see a problem here, just hedge with futures!
 
Quote from MTE:

You kidding, right!? A vertical has a limited risk no matter what happens, if a covered call goes against you the margin req. will grow as well.

Anyway, I don't see a problem here, just hedge with futures!
More...

Ok i agree: it's not so much a matter of margin, but of pricing. I mean the long option loses value faster than the short (when market goes your way) due to being further apart from the market. I've traded verticals for a while and never liked the spread value, always thought it was too little - the long option time value eats the trough the short option time value.

I dont agree when you say that losses can be astronomical trading covered call whan opposed to trade verticals. If you trade verticals either your risk/reward is too crappy or you can't afford to have a sharp move against you.
Sorry to disagree but i've traded both and i like covered call better.

how do you mean "...just hedge with futures!"

do dax options and dax futures move alike? is the relationship roughly 1-1? How do you "live" with unmatching calenders?

thanks in advance
 
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