How would you structure the hedge I’m trying to do?

C

CopperOverGold

I’m short the NQ, in a decently sized way. I believe it’s going to drop. Having said that, if it goes up, it’ll be be because of google and Microsoft (again, my belief).

Goog close above 2130, and the NQ will rip up
OR
Msft close above 2145 and the NQ will rip up

otherwise, the NQ correction cuts deeper and my shorts are golden.

how would you structure your hedge with this view? I’m not very skilled on options as I tend to stay away from then because of the time factor, but I’m willing to learn. Their outcomes seem very binary to me, but I’m sure that’s due to my lack of sophistication.
 
Buy call options on goog and msft.

or buy the stocks outright.

or just buy calls on the ndx.

the tricky thing is figuring out how much of the calls or stock to buy and that will be determined on why if msft and googl rally the ndx will rally and in what proportion.
 
put a backspread on in the qqq or /nq options. sell one call closer to atm and buy 2 further otm. If you're expecting this move soon an example would be in qqq with 4 DTE

sell 1 317 call buy 2 318 calls @ a debit of $2.11 your max risk is $2.11 and you have unlimited up side potential. Or just buy a ATM call depending on your risk needs. Lots of ways to slice it. Or an OTM wide fly. On the backspread your maximum risk is $311. Just a thought.
 
caroy said:
put a backspread on in the qqq or /nq options. sell one call closer to atm and buy 2 further otm. If you're expecting this move soon an example would be in qqq with 4 DTE

sell 1 317 call buy 2 318 calls @ a debit of $2.11 your max risk is $2.11 and you have unlimited up side potential. Or just buy a ATM call depending on your risk needs. Lots of ways to slice it. Or an OTM wide fly. On the backspread your maximum risk is $311. Just a thought.
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You have no idea what he’s actually trying to hedge. How can you suggest anything meaningful.
 
FB and recently INTC have been the drivers, with MSFT next.

Meanwhile TSLA has been a negative, so keep an eye on it if it swings back positive.

And of course watch SOX.
 
newwurldmn said:
Buy call options on goog and msft.

or buy the stocks outright.

or just buy calls on the ndx.

the tricky thing is figuring out how much of the calls or stock to buy and that will be determined on why if msft and googl rally the ndx will rally and in what proportion.
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Thanks newwurldmn.
I suppose my question, which I didn’t explicitly ask, is around which call options. There are lots of them. How do I go about choosing? Let’s say I want to go to May expirations, as I don’t know that this mess will be over before the April options expire (another reason I’ve steered clear of options- I don’t know when!). Itm, slightly otm? Optimize for delta? For implied vol? I don’t really know. It seems random to just pick a call option. What math do I have to do to select the right option/set of options? Thoughts?
 
CopperOverGold said:
I’m short the NQ, in a decently sized way. I believe it’s going to drop. Having said that, if it goes up, it’ll be be because of google and Microsoft (again, my belief).

Goog close above 2130, and the NQ will rip up
OR
Msft close above 2145 and the NQ will rip up

otherwise, the NQ correction cuts deeper and my shorts are golden.

how would you structure your hedge with this view? I’m not very skilled on options as I tend to stay away from then because of the time factor, but I’m willing to learn. Their outcomes seem very binary to me, but I’m sure that’s due to my lack of sophistication.
More...


You're trading synthetic long puts any time you buy calls around a futures position. The moneyness determines how much you're willing to risk (intrinsic on syn-put). Choose a strike on NDX that you're looking to hedge with a call and then look at the actual put at that strike. Are you willing, now, to buy that put outright if you had no existing position?

Here's an example on the monthlies.

NQ 12,961
NDX 12,979

The APR 13500C is 76 prem. $7,600 call with a terminal BE of 13,576. The 13500P is trading 76 + intrinsic (more to it, but will suffice, marked to futures). The futures (5 lot) and long the NDX 13500 call = long the NDX 13500 put.

Would you buy the NDX APR 13500 put here, to initiate a short, from 600? A move to 13,500 NDX tomorrow will result in a loss of half of the prem-paid (300 points on put) vs. a loss of 530 on futures. This ignores the "stickiness" (vol skew rising on 13500 strike) and "strip" (loss of vol on all strikes due to inv-correlation of mkt to vol). Ignore that.

Any time you add a vol-hedge in singles (single option) you are converting the position to a synthetic put or call. The vol you pay in MSFT or GOOGL may seem cheaper (notional) but the vols are going to be higher and you won't achieve the marginal benefit from stickiness in single-names.

TL;DR: pick an NDX strike and exp (or NQ) for the call buy. Would you be satisfied with the risk on buying that same-strike put? Because that is your new position.
 
SunTrader said:
FB and recently INTC have been the drivers, with MSFT next.

Meanwhile TSLA has been a negative, so keep an eye on it if it swings back positive.

And of course watch SOX.
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Social media stocks are doing jack shit. FB will underperform as it's still about the rotation into cyclicals and the infrastructure Bill.
 
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