hedging SPX options

daniel5198 · Jan 9, 2012

Will it be correct to delta hedge one SPX put with 2 ES contracts? any other viable/liquid possibility (besides the too expensive 100 SPY shares)? Tnx

ForexForex · Jan 9, 2012

Quote from daniel5198:

Will it be correct to delta hedge one SPX put with 2 ES contracts? any other viable/liquid possibility (besides the too expensive 100 SPY shares)? Tnx

I recommend hedging with a bottle of Baby Duck wine. For each SPX put drink one bottle.

MTE · Jan 10, 2012

Quote from daniel5198:

Will it be correct to delta hedge one SPX put with 2 ES contracts? any other viable/liquid possibility (besides the too expensive 100 SPY shares)? Tnx

That depends on the put's delta. ES has a delta of 50 (i.e. each point is worth $50, while each point in SPX is worth 100), so 2 ES means a delta of 100.

daniel5198 · Jan 10, 2012

Quote from MTE:

That depends on the put's delta. ES has a delta of 50 (i.e. each point is worth $50, while each point in SPX is worth 100), so 2 ES means a delta of 100.

Thanks

ForexForex · Jan 10, 2012

Quote from ForexForex:

I recommend hedging with a bottle of Baby Duck wine. For each SPX put drink one bottle.

Quote from daniel5198:

Thanks

You are welcome.

daniel5198 · Jan 16, 2012

Quote from MTE:

That depends on the put's delta. ES has a delta of 50 (i.e. each point is worth $50, while each point in SPX is worth 100), so 2 ES means a delta of 100.

IOW, to hedge 40 SPX Feb ATM calls , I need to short 40 ES contracts. Reg T margin for this is $320,000.
Anybody knows if PM would be lighter for this position?

IgorVI · Jan 16, 2012

Quote from daniel5198:

Will it be correct to delta hedge one SPX put with 2 ES contracts? any other viable/liquid possibility (besides the too expensive 100 SPY shares)? Tnx

You can hedge SPX put with SPX calls according to their deltas

MTE · Jan 16, 2012

Quote from daniel5198:

IOW, to hedge 40 SPX Feb ATM calls , I need to short 40 ES contracts. Reg T margin for this is $320,000.
Anybody knows if PM would be lighter for this position?

Futures do not fall under PM so it wouldn't make much of a difference.

daniel5198 · Jan 16, 2012

Quote from MTE:

Futures do not fall under PM so it wouldn't make much of a difference.

Tnx again. sorry to go on about this, but it is important and practical for me. How about hedging with SP futures? e.g. long one future contract for every 5 SPX ATM puts? will that work (delta-wise)? would that reduce the margin requirement ('cause option and future are for the same U/L)?

atticus · Jan 16, 2012

Quote from daniel5198:

Tnx again. sorry to go on about this, but it is important and practical for me. How about hedging with SP futures? e.g. long one future contract for every 5 SPX ATM puts? will that work (delta-wise)? would that reduce the margin requirement ('cause option and future are for the same U/L)?

You're replicating the ATM straddle, synthetically. You would need ~10 ES against your puts. Why not simply go long or short the natural straddle in ES (or even the synthetic) and receive SPAN treatment?