Using a hedge instead of a stop

Quote from GordonTheGekko:

Btw have you considered hedging with super leverage, i.e. going net neutral by putting money in leveraged ETFs or shorting cash in forex on huge margin?
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I would need a different broker. Any net 0 position, small or large, creates a fee. Since the roll cost on a long is greater than roll rebate on a short, there is an immediate net negative equal to spread + roll cost - roll benefit. The roll only applies if held overnight. In other words, there is no benefit to exiting the long and the short at the same time.

The best advantage I can see is to treat them like a single block until a desired price is reached, exit one branch, and let the other branch ride until the next desired price is reached.
 
I know a trader who has been doing this for years and is apparently very profitable. He goes long and short the same instrument but uses short options to create a boxed hedge. The only downfall is how wide the difference is in the UL between the long and short, if it gets too far apart one side has to be reined in at a loss.

He also has a strategy that combats that loss and potentially turns it into a winner, goes against all the rules of 101 trading but works for him.
 
Quote from falcon:

I know a trader who has been doing this for years and is apparently very profitable. He goes long and short the same instrument but uses short options to create a boxed hedge. The only downfall is how wide the difference is in the UL between the long and short, if it gets too far apart one side has to be reined in at a loss.

He also has a strategy that combats that loss and potentially turns it into a winner, goes against all the rules of 101 trading but works for him.
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Ok, so my stop on the USDollar just got hit at 10,013. I am now simultaneously long and short. I had an orginal target price set at 9420, with an average short price of 9990. So, short at 9990, long at 10,000. For now, I have locked in a maximum loss of 23 pips + fee.

Panic around the world is driving the price back up again after a plunge yesterday evening and this morning. It could go a lot higher, but I don't see the point of exiting my orginal trades. Why spend the money only to reenter them later? Over the long run, I believe strongly the usdollar will continue its trend down.

The trick now is to correctly exit the long.

My available margin has returned to 99.28%
 
I dont know the mechanics behind his system but from what I can fathom he takes lots of small wins on both sides througout the day as the market moves about. He has a set point whereby he doesn't let the difference between the short and long go past as he doesn't want the difference to be too great in case it trends one way.

However if it does take off he profits with the long and short put and also the short call over time, thus leaving only the short side exposed which he has a mechanism for dealing with this.
 
Quote from falcon:

I dont know the mechanics behind his system but from what I can fathom he takes lots of small wins on both sides througout the day as the market moves about. He has a set point whereby he doesn't let the difference between the short and long go past as he doesn't want the difference to be too great in case it trends one way.

However if it does take off he profits with the long and short put and also the short call over time, thus leaving only the short side exposed which he has a mechanism for dealing with this.
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If I am understanding this strategy correctly, one could take several very large positions, with even a small percentage of them profitable, the others could be cancelled with only the fees charged and net zero on capital loss/gain. The result would be a nice profit with minimal risk.

However, the profit on the few small successes would have to be greater than the sum of the fees on the net zeros.
 
Yep that pretty much it and some secret sauce strategy to turn the loser into a winner with short ITM options. Dont ask me how though.
 
Quote from falcon:

Yep that pretty much it and some secret sauce strategy to turn the loser into a winner with short ITM options. Dont ask me how though.
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What appears to have potential is when what ever you are trading is moving with in a fairly tight channel.

Basically, you can enter the hedged positions at any price, and simply wait for this channel. Exit one leg, wait for the other to become profitable, exit that leg. Actually, the other leg doesn't need to be profitable, it simply needs to reduce its loss to produce a net profit.

More research needed ....
 
that seems to be the gist of it. Spoke with him yesterday, the stocks he trades are usually rangebound with small movements. He says theres the occationally big moves which can work well also and if it goes uni-directional then he'll take the loss on the losing side while continuing to trade the other side.

When he takes the loss he'll simultaneously write short puts or calls ITM depending on which side has taken the loss, will also have his already existing short calls or puts OTM so he brings in enough premium to offset the entire loss. Then it just a matter of waiting till expiration to recoupe the loss and start all over again.
 
Quote from falcon:

that seems to be the gist of it. Spoke with him yesterday, the stocks he trades are usually rangebound with small movements. He says theres the occationally big moves which can work well also and if it goes uni-directional then he'll take the loss on the losing side while continuing to trade the other side.

When he takes the loss he'll simultaneously write short puts or calls ITM depending on which side has taken the loss, will also have his already existing short calls or puts OTM so he brings in enough premium to offset the entire loss. Then it just a matter of waiting till expiration to recoupe the loss and start all over again.
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I also want to explore the value of multiple pairs where you match a branch of one pair against the branch of another pair.
 
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