need help for hedging

David's faith

David's faith

Okay so I am mostly trading and therefore a newbie in investing and especially in hedging.
Now I own a small portfolio of longterm holds and do not want to get margin called if they depreciate a bit when markets correct their recent crazyness. So I want to hedge my position during correction phase. My assumption is, that If the SP500 corrects, other markets do as well. Since SP500 mainly consists of AAPL, I plan to short sell AAPL instead of SPY. As I do not know how long the correction may last, put options are not what I want. So my question is in regard of my portfolio - how many AAPL stocks should I short in relation to my portfolio size? Should I focus on excess liq instead? Can I meter the greeks of a stock position somewhere in the IB TWS like I can with options?
 
David's faith said:
Okay so I am mostly trading and therefore a newbie in investing and especially in hedging.
Now I own a small portfolio of longterm holds and do not want to get margin called if they depreciate a bit when markets correct their recent crazyness. So I want to hedge my position during correction phase. My assumption is, that If the SP500 corrects, other markets do as well. Since SP500 mainly consists of AAPL, I plan to short sell AAPL instead of SPY. As I do not know how long the correction may last, put options are not what I want. So my question is in regard of my portfolio - how many AAPL stocks should I short in relation to my portfolio size? Should I focus on excess liq instead? Can I meter the greeks of a stock position somewhere in the IB TWS like I can with options?
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To hedge 100 shares of SPY or $34K portfolio size, you’d need to short sell the same $amount of AAPL stock, meaning $34K worth of shares, or 280 AAPL shares to be exact. This would put you close to being delta/gamma/vega neutral.
You may realize that this means getting the hell out of the stock market :)
 
Generally you don't pick one stock to hedge against the market as a whole, it's usually the other way around.
This sounds more like a short on Apple.
You don't need to hedge your entire portfolio, you could just take a smaller percentage.
But let's say you have 10,000 invested in SPY, you just work out the equivalent $10,000 in Apple. This assumes it moves 1:1 worth the spy, other sectors or stocks you need to check the correlation and volatility.
 
Well I am mainly into Australian mining stocks not into spy, but I find that, if the spy has a bad day Australian markets have too. At least since the sickness is around.


So there is only put options on spy left it seems?
 
David's faith said:
Well I am mainly into Australian mining stocks not into spy, but I find that, if the spy has a bad day Australian markets have too. At least since the sickness is around.


So there is only put options on spy left it seems?
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Pretty much, and may work as long as your stocks are going up sufficiently to pay for those puts, before they may crash. Basically it would be a variant of a strangle. Buying puts for a fairly static portfolio would only be an expense.
Though consider buying puts on individual and more volatile stocks that you hold. And/or selling covered calls if you can estimate the upside.
 
David's faith said:
Well I am mainly into Australian mining stocks not into spy, but I find that, if the spy has a bad day Australian markets have too. At least since the sickness is around.
So there is only put options on spy left it seems?
More...
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NO. Several ways to do it.
[1] Get off margin in the latter stages of a bull move/bull market.
[2] Use Cash/or have a larger cash cushon would be among the best...……………………….
[3]Use ETFs
[4]Could use leveraged ETFs sometimes/I do that myself sometimes.[Impossible to get a margin call on those.]
[5]XLK/tech ETFs/QQQ are more highly correlated to AAPL than SPY.[xlk =24% aapl]
IF I did not have my cash qqq to sell last week, I would have made no money/my TQQQ gapped/ moved to quick to preserve my profit. Good question DavidsFaith
 
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