Single instrument traders, how do you hedge?

D

drukes1234

Quick question here for all you one instrument traders. How do you hedge against an adverse event? I remember reading a thread back in the day about a trader who was long the SPY's in 2001 when the Fed cut interest rates and it wasn't even a fed day. He landed out losing over 1,000,000

Having said that, even if your strategy is solid, how do you protect against such an event?
 
Most traders who go short SPY are looking to go short SPY and not short SPY-Interest Rates. Why? Because they have no clue why SPY should go down. It's all just a gamble to them.

Is it the interest rate moves they are catching, or something else? They don't know and they don't care. Thus, they don't want to filter out components such as interest rate moves. The expected (hoped) downward move might in fact be due to something they accidentally filter out!

-Raystonn
 
It depends on the particular strategy. Having a portion of your capital in a long tail strategy (buying OTM options or buying vol) is viable.

Non arbitrage trading is risk taking any way you cut it. You NEED to take some risks in order to generate a return simple as that. How much risk depends on your strategy. Some strategies bet on certain key aspects of the market say a relative value bet between two sectors. Others may make a bet without factoring out the various risks associated with the position.

But the premise remains the same, returns are generated through taking risks. Traders are risk managers. The best traders evaluate risk well while poor traders do not.
 
No need to hedge when you're confident... ignorant comment, I'm sorry. I don't care how confident you were going long the last trading day before September 11th 2001.
 
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