Hedging Options Book

[TM1982]

Anyone use future minis to hedge your deltas at end of day instead of hedging each stock's deltas? I think I may start doing this to save some money on commissions which is coming out to about 200 a day right now.

Anyone know the equivalent dollar deltas of trading 1 S&P Mini, 1 Nasdaq Mini, and 1 Russell Mini?

Thanks.

 

[MTE]

ES is 50 deltas, NQ is 20, TF 100.

 

[mike007]

Or you could beta weight and just use that underlying.

 

[TM1982]

Quote from MTE:

ES is 50 deltas, NQ is 20, TF 100.

So in order to use 1 mini to hedge a book, you would need roughly:

33,000 Dollar Deltas to use a Nasdaq Mini (20 *1670)

50,000 Dollar Deltas to use an S&P Mini (50 *1000)

58,000 Dollar Deltas to use a Russell Mini (100 *580)

These are rough approximations!

 

[TM1982]

Quote from mike007:

Or you could beta weight and just use that underlying.

Can you give a quick example mike? Thanks.

 

[MTE]

Quote from TM1982:

So in order to use 1 mini to hedge a book, you would need roughly:

33,000 Dollar Deltas to use a Nasdaq Mini (20 *1670)

50,000 Dollar Deltas to use an S&P Mini (50 *1000)

58,000 Dollar Deltas to use a Russell Mini (100 *580)

These are rough approximations!

1 ES contract gives you 50 deltas (i.e. 1 point move in the S&P 500/ES is equal to $50). So if you have an ATM call with a delta of 0.5 on let's say SPX, then you need 1 ES to hedge it, since 1 point in SPX options is $100.

In order to hedge a book, you can use, as suggested beta weighting. That is, you take the total delta of a position in each underlying and then weigh it by the beta of that underlying relative to the ES, for example. It's not a perfect method though.

 

[RedEyeFly]

I keep a short order on the mini's about 4-5% below the SPX index value in case someone nukes themselves (they nuke us, we vaporize them in return) in the overnight and equities get a scare. I don't over do it, just enough contracts to reset my normally neutral deltas at that 4-5% point. I have not had this hit since 2008, which is good because it's a real bother if the market rebounds. Note: I don't place the order at a single strike, but rather scale in around a region of prices in case there is a bad tick or a weird bound. The goal is to slow down the sled, not kill you position.