Hedging w/Backspreads vs. Protective Puts

Quote from jones247:

I appreciate your recommendation on a collar over the backspread as downside protection. I guess the only way that I would consider a collar is to short the stock, sell a put & buy a call, since the premiums are better with a put.
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Even if you find a situation where market forces have made put premiums higher than call premiums, trying to protect short stock with a call backspread is just as bad an idea.
 
Quote from jones247:

I'm really trying to find a way that ultimately provides downside protection without the high cost, while allowing a big upside potential.
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It's time to organize an expedition to find Big Foot

:)
 
Quote from jones247:

Maybe my time would be better spent trying to find Big Foot riding a Unicorn, as opposed to finding a low/no cost & low/no risk downside protection mechanism...

Walt
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If you don't try, you'll never get it! :)

However if you try really very hard, you might get it one day, or you might be just always very close to find it without getting it, or you might still never get it! :D
 
Quote from jones247:

Maybe my time would be better spent trying to find Big Foot riding a Unicorn, as opposed to finding a low/no cost & low/no risk downside protection mechanism...

Walt
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A black unicorn at that!!
 
"It's time to organize an expedition to find Big Foot"


Quote from weewilly:

no need, he's located in a dark pool at 85 Broad St, New York, NY.
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By any chance is he nicknamed weewilly?

:)
 
Mark posted a good explanation as to why a backspread is a poor choice for hedging long stock.

In insurance terms...

1) You can buy good protection (high cost, low deductible)

2) You can buy poor insurance (low cost, high deductible)

3) You can add riders that alter (1) and (2) but they change your coverage

- sell OTM calls to reduce the premium cost (reduces upside profit)

- overwrite OTM calls and/or bearish spreads (further reducing upside profit, possibly introducing upside risk)


In more general terms, hedging means giving up something to get something.
Pick yer poison... :)
 
I guess my best bet is a calendar collar... where I dynamically adjust the short calls & the long puts as the value of the derviatives change due to Theta, Vega & Delta.

Does anyone have extensive experience on calendar collars?

Walt
 
Quote from jones247:

I guess my best bet is a calendar collar... where I dynamically adjust the short calls & the long puts as the value of the derviatives change due to Theta, Vega & Delta.

Does anyone have extensive experience on calendar collars?

Walt
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Dynamic adjustment is expensive so be careful with it.
 
Quote from MTE:

Dynamic adjustment is expensive so be careful with it.
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True... but dynamic hedging of a calendar collar is probably still my best bet at low cost & low risk hedging of a stock position (long or short)...

Walt
 
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