Hedging the wheel

[markthepadrone]

You can't hedge anything when you get assigned, it's too late by then. Imagine you sell calls on equities and it jumps 40% or more outside rth. What you gotta do then? You get assigned and whatever hedge you put on then is useless.

It's obvious that you don't know what you're talking about by the terms you use incorrectly. Please excuse yourself from this grownup discussion.

 

[markthepadrone]

If you're going to short upside calls then add some leverage and shoot for neutrality. Buy 100 TQQQ -> short two 20D calls -> cover with wings on a strike touch at a net-credit -> rinse, repeat. You'll "own" synthetic flies at a large arb-credit (equivalent 10-wide natural fly for say, a credit of 30 cents) and it can be repeated indefinitely as you're trading house money. The fly at a credit means that you're available cash is greater than before you were carrying a position.

Conversely, do a D1 fly. Long TQQQ -> short two OTM calls -> long one further OTM call. Re-evaluate on strike touch.

That might work for you but that has nothing to do with what we're talking about. Have you always had trouble staying on topic?

 

[markthepadrone]

Trading "a wheel" for income is like funding your life by playing roulette. You sell the upside for money now and that's it. "Hedging" makes it not a wheel and instead a very different trade: one that requires math that only an autist can do.

Since you're the only autistic person here, please share your math.

 

[markthepadrone]

So back to the serious people here. When my puts get assigned, I'll short MNQ contracts that add up to a notional value equal to the TQQQ position. There are two issues I see with this.

First, when to drop the MNQ position is the market starts moving up.

Second, is a 1:1 value the correct amount? How does the 3x of TQQQ play into this?

 

[destriero]

So back to the serious people here. When my puts get assigned, I'll short MNQ contracts that add up to a notional value equal to the TQQQ position. There are two issues I see with this.

First, when to drop the MNQ position is the market starts moving up.

Second, is a 1:1 value the correct amount? How does the 3x of TQQQ play into this?

You should stop using that word. You're going to cover your risk in TQQQ and short calls, ostensibly making the call naked risk. It's mind-numbing stupid.

 

[IronFist]

If you're going to short upside calls then add some leverage and shoot for neutrality. Buy 100 TQQQ -> short two 20D calls -> cover with wings on a strike touch at a net-credit -> rinse, repeat. You'll "own" synthetic flies at a large arb-credit (equivalent 10-wide natural fly for say, a credit of 30 cents) and it can be repeated indefinitely as you're trading house money. The fly at a credit means that you're available cash is greater than before you were carrying a position.

Conversely, do a D1 fly. Long TQQQ -> short two OTM calls -> long one further OTM call. Re-evaluate on strike touch.

Am I correct in figuring this would be profitable unless price closed between the two strikes, or dropped widely enough so that your cost of the call + funds from two calls sold didn't counter the loss?

 

[BlueWaterSailor]

You can't hedge anything when you get assigned, it's too late by then.

Say what? Hedging can be done with pretty much anything, as long as you have correlation. Since basic math seems to be a stumbling block, try paper-trading, say, 50 shares of SPY and get short one /MES contract, then watch the P&L. Take as long as you need...

 

[markthepadrone]

You should stop using that word. You're going to cover your risk in TQQQ and short calls, ostensibly making the call naked risk. It's mind-numbing stupid.

What word?

If I get assigned TQQQ and then short MNQ I'm at 0 Delta ish. I then sell covered calls against the TQQQ position. If TQQQ recovers or gets called, I'll BTC the MNQ short. The only risk I see is if I hold the MNQ short while TQQQ goes up past my assignment value. Why wouldn't this work?

 

[destriero]

Am I correct in figuring this would be profitable unless price closed between the two strikes, or dropped widely enough so that your cost of the call + funds from two calls sold didn't counter the loss?

Shares and short two 35C = short one lot 35 straddle. Ideally used in skewed mkts, so better to run it on 2X bear funds. What two strikes? Between the short calls and the long wing? Quite a few variables; vol-line, skew (is spot above or below short strike?), time remaining, spot/vol corr. Empirically, overwrites/bull synthetic straddles dramatically outperform buy-writes.

 

[markthepadrone]

Say what? Hedging can be done with pretty much anything, as long as you have correlation. Since basic math seems to be a stumbling block, try paper-trading, say, 50 shares of SPY and get short one /ES contract, then watch the P&L. Take as long as you need...

In balance?
Isn't 50 of SPY $19k and 1 ES is $195k? Maybe MES.