What is the best way to hedge a long SPY position against a future market crash?

[botpro]

Well, your thread has been closed so you weren't paying much. Stop advertising your system.
You are totally off topic of this thread

Hey Chubbly: why don't you kill yourself? You have been the most critic of my system, but on a very unfair way!
Regarding off-topic: it was you who asked me what I'm doing here if I have a system that makes 1000% p.a. And I replied that I'm offering the system here on this site and gave the link.
So, you should stop lying, man!

 

[OddTrader]

Well, your thread has been closed so you weren't paying much. Stop advertising your system.
You are totally off topic of this thread

Paying ET for advertising, but not paying data vendors for testing with real market data! Serious?

 

[Raphael]

BS, you shouldn't easily believe everything written by some incompetent authors.
And it seems to me that this paper has never been accepted for publication,
it's just an incomplete "work-in-progress" draft from the year 2009.

In an other paper from 2012 they make these abstruse (because contradictionary and illogical) claims:
"The average implied volatility of the constituents is 32.7% and the average
realized volatility is 31.8% which yields a volatility risk premium of 0.9%.
The average implied volatility of the index is 19.2% and the realized volatility
amounts to 16.7%, which yields a volatility risk premium of 2.5%."

Unbelievable! These relations can't be true, not mathematically!

And: the price of "risk premium" isn't determined by what they compute,
it is simply the premium of the call and put in the market.

Just to be clear put-call parity does not imply that options are not mispriced. There could be a gap between realized and implied volatility even if put-call parity is satisfied.

 

[Chubbly]

Hey Chubbly: why don't you kill yourself? You have been the most critic of my system, but on a very unfair way!
Regarding off-topic: it was you who asked me what I'm doing here if I have a system that makes 1000% p.a. And I replied that I'm offering the system here on this site and gave the link.
So, you should stop lying, man!

What am I lying about? Your thread that you are trying to sell a 1000% p.a system that has never been tested on live data got closed.
Anyway, let us know when you make your first 1000% year trading live

 

[botpro]

What am I lying about?

Yes, because you unfairly and wrongly accused me of making advertisement in this thread, whereas I just made a reply to your questions.

Your thread that you are trying to sell a 1000% p.a system that has never been tested on live data got closed.

And? Are you satisfied?

Anyway, let us know when you make your first 1000% year trading live

Promised! ;-)

 

[botpro]

Just to be clear put-call parity does not imply that options are not mispriced. There could be a gap between realized and implied volatility even if put-call parity is satisfied.

Yes, you are right, but these are rare situtations, where even some people are specialised to find such mispricings.
But such situations don't last long as people (or bots) make immediate use of it.
And even this fact doesn't change much the general case.

 

[Handle123]

Going 50/50 on SPY/TLT won't help. SPY puts are expensive. Stop loss orders cause $$$ loss due to head-fakes and flash crashes that recover quickly. Selling covered calls doesn't bring much protection. What are some other ideas?

Hedging is never perfect no matter how much time I do back testing, I trade more commodities than Index ETFs, but when I am expecting retracement, I will do Debit spreads so it is limited loss and of course limited gain, but am trying to protect gains in the underlying. Am short Indexes but I was waiting for lows in ES Sept 29, 2015 then Oct 17, 2014 to be broken and on move back up started doing Call debit spreads, keep them a week then wait for retracements to do again. I prefer doing the spreads as want them as cheap as I can but with some protection of underlying. I will remain short till market either takes huge 8-9 year drop or get stopped out at breakeven, but in between either add to my shorts and will dance option plays around the position.

 

[murray t turtle]

Going 50/50 on SPY/TLT won't help. SPY puts are expensive. Stop loss orders cause $$$ loss due to head-fakes and flash crashes that recover quickly. Selling covered calls doesn't bring much protection. What are some other ideas?

Reduce you position size during times of stress.

Good one Rmorse,amen-reduce position size. Another helpful hint; study bear markets- actually i dont have any problem with calling the move= ''crash of 1987''

Even though US Sec of treasury, may have ''triggered it'' he may NOT have triggered it?? for example 1987, like 2015[counting dividends] ,was[a] a real mature[ in years] bull market.......................................

[z]Then- January 1987, DOW,S&P were Up a record % %, which is bullish in many ways; but then SEPT 1987 was down, an early warning.So to call it OCT '87 a crash is overly dramatic.[DOW, SPY was up in 1987 year, NasdaQQQ was down for the year]. To answer your question; i like a good downtrend-BAC,C basket of big banks are good DOWNtrenders, 10 year DOWNtrend.

Not a prediction; wisdom is profitable to direct.Carl Ichan said ''God only knows how far it goes down[2015] ''.I like him, he is usually accurate + early..................................good question.

 

[aquarian1]

I suggest you consider a mixture should you wish to continue to hold your SPY (which I think is foolish given the huge risk of a big crash) such as this:

1. On temporary rise sell a portion of your long Spy, e.g. 20%
2. Use the cash to buy inverse SPX ETF (bear 2x or 3x) e.g SSO or HXD
3. At temporary bottom, a dip, (not a crash ), close your bear ETF - so you now have some cash
e.g 20% might be 20% or 40%
4. Repeat 1 to 3 (either with your cash or selling more SPY)

After 3-4 cycles you would have as much cash as you have SPY without having changed your SPY holding except for 20% on the first hill.

Optional torque: On any hill you could purchase some bear LEAPs on high beta stocks - perhaps GM (I don't know which stock have LEAPs) or short bull LEAPs.