hedging

[notafool]

what do you thing about buying deep in the money calls so minimizes the time value,and buying atm puts and selling credit spreads to finance them. does this take away all the risk? and what are the potential drawbacks from this strategy?
please let me know what you think

 

[LanceJ]

Can you give more details about the trades. strikes, prices, underlying, etc...

 

[OptionsOptionsOptions]

what do you thing about buying deep in the money calls so minimizes the time value.

Buy ATM or OTM for more bang-for-your-buck.

.....and buying atm puts.

Go with Calls - we are in a bull market.

.....and selling credit spreads to finance them.

Premiums too low - you are just collecting peanuts.

what are the potential drawbacks from this strategy? please let me know what you think

Poor strategy.

 

[notafool]

@OptionsOptionsOptions i guess you are right about the in the money calls, atm would be better. as to what you said i should go with calls, if you would have read more carefully you would see that i am trying to be fully protected. and i know i wasnt clear but if i buy a put a couple of months out theres more then enough time to sell a bunch of spreads to make up the money that i paid for the put. and i dont know if this is gonna be a shocker, i highly doubt that this bull rally is going to sustain much longer.

 

[notafool]

@LanceJ
buy call and put a couple of months out and sell spreads, or if you actually own the stock you can just sell calls without the spread.

 

[notafool]

Buy ATM or OTM for more bang-for-your-buck.



Go with Calls - we are in a bull market.



Premiums too low - you are just collecting peanuts.



Poor strategy.

you are right that there is better leverage with atm and otm but the less time value there is the better protected you are with the hedge.

 

[LanceJ]

I understand why you would buy D-ITM calls, because of the high delta and low premium. But when you also buy a put you make it into a long volatility position, you need a strong trend or a ton of scalps which can be challenging. Selling credit spreads would generate little income. Then when the volatility you need for profit for the first 2 legs hits all the credit spreads you sold in disproportionate amounts to fund the put will all be moving into the money and maxing out losses.
I think a better long volatility position would be buying Calls and selling stock delta neutral.
What is your goal?

 

[Atikon]

Buy ATM or OTM for more bang-for-your-buck.

OTM Wings always more expensive because of Volatility Smile

 

[Atikon]

what do you thing about buying deep in the money calls so minimizes the time value,and buying atm puts and selling credit spreads to finance them. does this take away all the risk? and what are the potential drawbacks from this strategy?
please let me know what you think

minimize time value? You mean time decay/theta? If you want to reduce time decay buy long term options (6 months+). You are going directional, if the market goes up, you will have to buy back calls for more money or risk letting them expire itm, also the puts you bought will be worth way less. You wouldn't even be able to buy more puts through selling the credit spreads, as the money will be acknowledged as buying power when you sold the calls/they expire (talking normal margin account here/portfiolio margin may be different).

 

[systematictrader]

what do you thing about buying deep in the money calls so minimizes the time value,and buying atm puts and selling credit spreads to finance them. does this take away all the risk? and what are the potential drawbacks from this strategy?
please let me know what you think

Selling credit spreads? give example

as far as calls it does minimize risk

I personally always buy calls no more than 20% deep in the money or puts when wanting to
Go
Short or long