How Much to Hedge Using Options
- Thread starter gvphubli
- Start date
First off it's generally not as simple as buying a put. But *if* the IV on the stock is relatively low then a straight put buy might make sense. If it's cheap enough you could even buy ATM.
Next you have to have some time frame over which you're worried something will happen. Is it next week or next year?
Which stock is it?
Next you have to have some time frame over which you're worried something will happen. Is it next week or next year?
Which stock is it?
Your basic question proves you have alot to learn about options.
You should instead hunker down and really read a few books or websites on options;
...you won't learn what you need to know based on a quick forum post or youtube video
You should instead hunker down and really read a few books or websites on options;
...you won't learn what you need to know based on a quick forum post or youtube video
Has the stock risen or fallen? and by how much? and how many shares?
Here's a small sample of what I do occasionally on a rising stock.
100 shares of a $50 stock pops 5% or up $2.50, instead of taking the profit immediately, scan for a delta neutral put setup, nearest month, which locks in the profit. The following day will determine your next move. Forget the whole idea if the b/a spread is too wide, then it just becomes a suckers game.
Your basic question proves you have alot to learn about options.
You should instead hunker down and really read a few books or websites on options;
...you won't learn what you need to know based on a quick forum post or youtube video
I understand what you are saying. When I look-up any book or website, they always have lot of material around various strategies. However, I deal with only stocks and I am looking at options to cut the risks (manage draw downs) and to that extent, I thought I will use options - if you have any suggestion around this, please comment - thanks !
lawrence-lugar is right, you really need to understand options better in general before doing this.
If all you want to do is protect a long stock position then just google "protective put strategy". You'll be able to get a better idea of what's involved and be able to get a more focused education on option basics in the process.
No one mentioned taxes yet. If you buy a protective put on a long stock position and choose to exercise the put if the stock falls there are tax consequences. Exercising a put is the same tax-wise as an outright sale. So if you have held the stock >1 year then it's a long term cap gain. BUT, any realized gain in value of your put is a short term cap gain.
If all you want to do is protect a long stock position then just google "protective put strategy". You'll be able to get a better idea of what's involved and be able to get a more focused education on option basics in the process.
No one mentioned taxes yet. If you buy a protective put on a long stock position and choose to exercise the put if the stock falls there are tax consequences. Exercising a put is the same tax-wise as an outright sale. So if you have held the stock >1 year then it's a long term cap gain. BUT, any realized gain in value of your put is a short term cap gain.
it is not simple - I figured that out. The issue I am trying to deal with is, I typically buy based on 20/200 MA cross over, sometime when markets are hot and if I buy the hot stocks that is a lot to loose, in such situation ..I would like to hedge such positions for a month or 2 (depending on volatility or until we over small corrections for the time being). I am hoping this might help control the draw-downs.
A no cost collar might make sense in the situation you just described.