Option hedge for futures
- Thread starter Mdtbyk
- Start date
Robert Morse
Sponsor
I have 2 thoughts on this.
Bob
- If you have entered this trade already, the time to ask this question was before, not after. Never enter a trade without understanding the risk/reward.
- To get an opinion from anyone here, you need to provide more details.
Bob
Thanks for the reply
It's a December future call at 2470 and a put option for September 21 (I think ) strike price is 2420. I want to know that is the markets will crash will this put protect me ? And for the future how does one check the risk in such an option to see how much is my risk exposure ?
Robert Morse
Sponsor
1 ES Dec Future (1 Delta)
1 ES 9/22 2420 put (~16 Delta)
A 16 delta put provides very little protection. If you want to estimate what that protection looks like, look at the closing value of the call. (Long future+Long put=synthetic call)
I can't see that until later today. Let's say that was 45 just to pick a number. Your current risk is 45*50 = $2250 per spread until the option expires.
In the future, you should have a process for picking that hedge. An example would be I don't want to lose more than $2250 if the market crashes but I want to participle on the upside. Just an example.
1 ES 9/22 2420 put (~16 Delta)
A 16 delta put provides very little protection. If you want to estimate what that protection looks like, look at the closing value of the call. (Long future+Long put=synthetic call)
I can't see that until later today. Let's say that was 45 just to pick a number. Your current risk is 45*50 = $2250 per spread until the option expires.
In the future, you should have a process for picking that hedge. An example would be I don't want to lose more than $2250 if the market crashes but I want to participle on the upside. Just an example.
Yeah that's the amount dont mindnot to lose I was using this option now for 3 month now to protect my future calls but I was debating with the es expiring soon in September abd instead of rolling over to the next month to but the December one and still use this option
Robert Morse
Sponsor
That choice needs to meet your needs. You can roll now, roll later. Roll to a different strike. Or, in the future when this is what you want from day 1, just buy the december call.
Buying shorter term put does give him more flexibility to manage his trade when the underlying makes significant moves either way.
And I already bought around June so then I was already a sufficant time
There is always a tradeoff.
Further expiration = more expensive but also protects for more time.
OTM = cheaper but provides less protection. Needs the underlying to move sharp and fast, otherwise will lose its effectiveness quickly.
Example: when trading iron condors, I like to buy far OTM puts to protect the trade against black swan event. I spend around 1% for protection, and I know that most of the time it will be wasted. But it allows me to sleep well at night.
So it really depends what is your goal. Are you okay to lose 10%, but want to protect agaisnt larger move? There is no right or wrong here, different options will provide different kinds of protections.
Further expiration = more expensive but also protects for more time.
OTM = cheaper but provides less protection. Needs the underlying to move sharp and fast, otherwise will lose its effectiveness quickly.
Example: when trading iron condors, I like to buy far OTM puts to protect the trade against black swan event. I spend around 1% for protection, and I know that most of the time it will be wasted. But it allows me to sleep well at night.
So it really depends what is your goal. Are you okay to lose 10%, but want to protect agaisnt larger move? There is no right or wrong here, different options will provide different kinds of protections.
No I'm looking for a way to lose between to 1-2 % of the account which is not to scenario
is there a way to trade the es and control my losses with options (not a stop loss which is not good for me )