Option Hedging with Futures

[weewilly]

Quote from toswilliam:

If you are selling calls you need the stock to rise in value to profit.

This is all I need to know about you, sir.

You are selling naked puts and rolling into a "hybrid" naked call if the market falls (and gives you an orderly chance to sell at your price). Once the emini sale is on, you have a naked call at the strike, subject to the risk of the market rising sharply.

 

[toswilliam]

Quote from weewilly:

This is all I need to know about you, sir.

Your right I mis-spoke it's late! So if I sell the calls and the stock price rockets through my strike price I have unlimited risk. Not my game. In my original post I already said I could sell the calls and buy the futures contract to create the same effect. Or sell a straddle with the floating futures hedge to increase the premium I could collect.

Thanks for correcting me sir!

 

[weewilly]

it's just another strategy that works when the market cooperates.

the market can take you to the woodshed with it however -- a gap down after you sell the puts, a whipsaw up after you sell the emini.

 

[toswilliam]

Quote from weewilly:

This is all I need to know about you, sir.

You are selling naked puts and rolling into a "hybrid" naked call if the market falls (and gives you an orderly chance to sell at your price). Once the emini sale is on, you have a naked call at the strike, subject to the risk of the market rising sharply.

Once the futures contract would rise back above the strike price I would buy back the contract and again be back in a naked put position. The key it to automate the process with software like tradeforecaster.

 

[Jym]

Have you looked at the credit spreads on futures options any?

I guess this would be more direction focused than you're wanting but this is a pretty interesting article on them.
The only catch is that they're hella pricey and out of my buying range at the moment but they look interesting.

http://www.investopedia.com/articles/optioninvestor/02/071702.asp

 

[weewilly]

you're scalping around your naked puts which is fine, but why not use the emini options themselves instead of assuming the tracking risk with SPY? or just use SPY with SPY options. why mix metaphors?

 

[toswilliam]

Quote from weewilly:

you're scalping around your naked puts which is fine, but why not use the emini options themselves instead of assuming the tracking risk with SPY? or just use SPY with SPY options. why mix metaphors?

The margin requirements and commissions are higher. I agree this would be ideal because they would trade identical.

 

[ddefina]

Good plan. For example, what if you sell 5 DIA puts at 100, and at the same time sell a YM contract at 1000, but instead of selling the YM contract at 1,000 each time when it moves below 1001, hold it with a moving average above it, and close the YM position when it rises through the moving average. This way you can keep lowering the protection strike price and giving yourself a greater buffer of protection in the future event you experience a gap move etc. I'm just thinking if you can hold a line you should be able to trade a moving average (a moving line). Good theory, might try it.

 

[PocketChange]

I like it... has potential.

Why would you need any more capital than the margin required to carry overnight 1 ES contract?

 

[ammo]

just sell spy 77/99 call sprd and 102/122 put sprd, the sprd trade for 19, can only got to 20/ 1 dollar risk, your risk is that the market just sits here, not likely, do it in size