How to hedge an ES or YM trade?

P

pjones2012

I am interested in trading the YM and the ES.

I am not wanting to pursue a scalping strategy, but rather a larger longer term move at market pivot points (market trend reversal and continuation points).

I am considering using a 10% stop loss at entry points.

For this position (or potentially with a larger stop loss) I would like to hedge my position in the event the market moves against it.

Any suggestions as to what I may want to consider doing in order to hedge my trade is most greatly appreciated.
 
buy/short the spy or buy call/put as a hedge. you can keep track of your deltas with those. 500 deltas is equal to being long 1 es. add short 500 spy and your flat.
 
Quote from Surdo:

Try a calendar spread.
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Surdo - Many thanks to you for your response and suggestion.

Unfortunately I have to plead ignorance. I am not exactly sure what you are suggesting.

I speculate that it could potentially mean:

1. Spread establishing my position in stages as my position proves positive - i.e. 30% initially, 30% more as the trade moves positive x%, then a final 40% as the trade moves positively x% - establishing my position over time.

or

2. Spread my position over the 03/09 contract, 06/09 contract (and maybe the 09/09 contract if possible).

These are the first 2 ideas that come to my mind as I read your suggestion.

Could you help me out and elaborate a little bit on your potential strategy.

Once again thank you for your response and consideration.
 
If you are long JUN YM, sell SEP YM to hedge downside risk.
You can get creative if you are trading multiple contracts.
You DO NOT have to hedge the entire position.

good trading!

surdo
 
Quote from Jaysal555:

buy/short the spy or buy call/put as a hedge. you can keep track of your deltas with those. 500 deltas is equal to being long 1 es. add short 500 spy and your flat.
More...

Jaysal555

Thank you for your response and suggestion.

It looks as if you gave two (02) great suggestions to use in singular or possible in combination.

1. The first suggestion I am understanding pretty well I believe. The "spy" appears to be a S&P 500 etf with great volume and liquidity.

Buying and selling an offsetting etf seems straight forward enough - thank you.

Do you have a dow jones etf you like or could suggest?

2. The second idea appears to be using options. Although I have never used a call or put - it is striking a cord deep within me that I definitely need to (and will) research this further. This initially sounds very sensible since the future contract is very leveraged the option is likewise - in an offsetting position.

Sorry to ask a stupid (probably ignorant) question - would you acquire a call/put on the index etf or the future contract itself?

Are you combining the actual position in the etf along with the corresponding call/put?

Jaysal555 - if you could elaborate and or suggest a direction (besides google - which I will be doing) for learning more - I would be grateful.

Once again thank you for your great suggestions.
 
Quote from Surdo:

If you are long JUN YM, sell SEP YM to hedge downside risk.
You can get creative if you are trading multiple contracts.
You DO NOT have to hedge the entire position.

good trading!

surdo
More...


Surdo,

I like it - Thanks.

What I like is that appears to be uncomplicated to implement.

On my charts, I am not yet picking up activity on the 09/09 YM or ES contract - is this right anyone? This could change in a couple weeks I suspect.

However the same concept would work now with the 03/09 and 06/09 contracts which I have traded (although the 03/09 contract will soon expire).

I am definitely looking further into this great idea.

Surdo - once again - many thanks!
 
Quote from SpecialPerson:

Synthetic puts/calls
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SpecialPerson - special thanks to you for you response and consideration.

I am pursuing a quick study of options - puts and calls - so your "synthetic put / call" suggestion is going over my head at the moment.

I like the sound of it.

Again I must plead ignorance here. If I were to speculate:

Jaysal555's hedging suggestion I believe uses puts and calls (as well as actual positions ) on the dow jones and S&P 500 indices' etf.

Is your suggestion using an offsetting put or call on the future contract itself.

If so this may be easier (I can not say for Jaysal555 sake more effective although it may be) than Jaysal555's suggestion.

If I may ask - could you elaborate a little?

SpecialPerson - Once again thanks for the great suggestion and response.
 
Your welcome, PJ.

An example of a synthetic call position would be a long in the ES futures and long Puts in the ES as well.

The reverse is true for a synthetic put.
Short ES futures
Long ES calls

Alternatively (not talking about synthetics anymore), a ratio spread could be appropriate.

Lets say that you really believe that there is a market bottom coming. You get long the ES, but maybe you don't feel like buying a 1:1 ratio of puts to protect yourself, you could buy say half the amount of puts.

To be "hedged" would imply a "full hedge" of using a 1:1 ratio, but if you have a bit of conviction in your trade, do you need to "fully hedge?"

Everybody's situation is different. I don't know how long you've been trading, if you are a large pro or a small day trader? So it's difficult to recommend an appropriate strategy.

HOWEVER, I can say this. If you are going to trade options, in the long run you will probably lose if you only take naked options positions. The only people that I know of that really just kill it in the options markets are almost always spreading and knowing exactly what type of spread to put on in each situation.

The simplest spreads are going to be your vertical spreads, but vertical spreads limit upside. If you want to maximize your upside, then ratio strangles seem to be the way to go. Strangle = long calls and long puts at different stikes in the same month.

Long Condors seem to be quite popular across all markets these days
 
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