How would you hedge the US financials?

[vaffab]

Hello.

Newcomer this site and looking to buy the US Financials Ishares IYF and would like to hedge it with another ETF. I was thinking Gold but what would be your recommendations?

Cheers

 

[Robert Morse]

Use options.

 

[haroldg]

looking to buy the US Financials Ishares IYF and would like to hedge it

Just buy less IYF in the first place. Decide on your true risk appetite. Plan your work, work your plan.

 

[java]

go long XLF then short the SPY calls, it's not exactly hedged, but you do make money on the short calls if xlf goes down with spy and they could enhance the return if the mkt stagnates so....2 out of 3.

 

[profitmoney]

You could buy put options, but it's expensive. What do you hope to achieve by hedging?

 

[ET180]

The VIX is currently 11.21. The low over the past 5 years is 10.28. Seems like a no-brainier to me! Get long (short puts / buy calls) the June contract in the mid to upper teen strikes depending on how aggressive you are feeling and then place a GTC trade to close the trade at your profit target. Sometime between now and then VIX will go higher...that's the lowest risk trade out there. Can also hedge financials with VIX.

Usually when I think I need to hedge when entering a trade, I'm eventually able to find a better trade where I don't need to hedge. Of course, I mostly sell options so the premium acts as a partial hedge.

 

[haroldg]

Seems like a no-brainier to me!

All the worst losses in my trading career have been on "no-brainers" that "can't lose."

 

[ET180]

All the worst losses in my trading career have been on "no-brainers" that "can't lose."

Maybe so, but you don't see VIX reaching at least the 14 level (as it did last week) sometime between now and June? I'm simply betting that it will get to 14 or 15. I don't need it to go to 20+ to make money. But there are many, many ways that it could.

 

[Handle123]

Maybe so, but you don't see VIX reaching at least the 14 level (as it did last week) sometime between now and June? .....

Maybe January 20, 12:01 EST? Dems pushing the market for nearly 8 years and yet many citizens working part time jobs and have given up. I see the stock market start declining with new President, we need a correction anyway. VXX, I am believing it might become the heaviest traded market in next couple years. Between owning and playing the options, might not need any other market of just playing risk. It can be a market for kids' education, the family home etc...I have started Dollar cost averaging past 2 months, as it goes down, buy a little more. People by gold, am buying the VXX.

 

[ET180]

Maybe January 20, 12:01 EST? Dems pushing the market for nearly 8 years and yet many citizens working part time jobs and have given up. I see the stock market start declining with new President, we need a correction anyway. VXX, I am believing it might become the heaviest traded market in next couple years. Between owning and playing the options, might not need any other market of just playing risk. It can be a market for kids' education, the family home etc...I have started Dollar cost averaging past 2 months, as it goes down, buy a little more. People by gold, am buying the VXX.

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I think we'll see volatility higher as we approach Jan 20. Maybe if I'm lucky, my VIX limit order will get hit and I'll exit that trade sooner than expected for a quick (although small, but low-risk) profit. I really don't like the VXX due to the huge amount of decay. Pull up a longer-term chart going back to 2008. It might work out for you depending on what happens, but consider buying June VIX calls instead.