Overnight Market Protection

mashiyoshi · Mar 6, 2003

Can anyone show me a simple overnight option strategy to protect myself from market volatility whenever the major indexes gap up or down?

Thanks in advance.

patefern · Mar 6, 2003

Quote from mashiyoshi:

Can anyone show me a simple overnight option strategy to protect myself from market volatility whenever the major indexes gap up or down?

Thanks in advance.

Are you trading ETF's, stocks, baskets? Long or short? Do you mean something other than calls if you are short, puts if you are long?

iceman1 · Mar 6, 2003

Quote from mashiyoshi:

Can anyone show me a simple overnight option strategy to protect myself from market volatility whenever the major indexes gap up or down?

Thanks in advance.

how can you trade and not know a strategy to protect yourself overnight... just wondering.

How big a gap do you forsee the need to protect... and what do you mean by "market volatility". Do you mean whenever the markets move up and down... like they've been doing for years and years?! And why do you want overnight option protection...?

Also, what do you mean by "simple"?

:eek:

howardy2k · Mar 6, 2003

MOC order

mashiyoshi · Mar 6, 2003

I'm just looking for a strategy to take advantage of large gap ups or gap downs (either way) in case it does happen on the S&P for example. Is there a way to capitalize on this?

slapshot · Mar 6, 2003

Quote from mashiyoshi:

I'm just looking for a strategy to take advantage of large gap ups or gap downs (either way) in case it does happen on the S&P for example. Is there a way to capitalize on this?

I think the first step in designing a hedge would be to define what commodity/intrument/equity you would own already that you need to protect.

Wait, first you said you want to protect, now you are saying take-advantage - which is it? Two different strategy altogether usually.

The reason I'm posting is to learn along with you -

OK Options guys/gals, lets say a person is holding 4 ES E-Mini overnight and wants to protect against anything more than a 10 point move against the position - what would you use as a hedge?

calls, puts, in the money, at, out of, buy 'em or sell'em?

Cmon, help out some rookies.

Thanks,

Paul

EliteThink · Mar 6, 2003

tough call but you could sell a call and buy a put, both atm and eliminate all risk and reward over night at very little expense.

mashiyoshi · Mar 6, 2003

Quote from EliteThink:

tough call but you could sell a call and buy a put, both atm and eliminate all risk and reward over night at very little expense.

Could you profit from a potential gap if you buy a call and buy a put, both at the money? If so, how large of a gap does it need to be for it to be profitable?

slapshot · Mar 7, 2003

Quote from EliteThink:

tough call but you could sell a call and buy a put, both atm and eliminate all risk and reward over night at very little expense.

Isn't this a market neutral position?

Would not the value of put and call change in tandem somewhat? One would go in the money more and one would be less valuable, correct? Kind of a wash?

If so, how does that hedge whatever you are holding overnight?

Sorry for newbie options questions.

Thanks,

Paul

stock777 · Mar 7, 2003

Why would you buy a 100% hedge on a futures contract? Just flatten the position (that means sell) and get back in the next day.

Otherwise you'd want to buy some kind of put, then trade out of it the next day. Since the big gap you're looking for rarely happens, you will pay through the nose for this strategy over time. No free lunch.