You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Whats the best way to hedge against multiple positions?
- Thread starter cashmoney69
- Start date
Quote from MandelbrotSet:
You're already hedged.
If you start playing around with options, you're going to overcomplicate your portfolio (even though, by definition, you're already "playing around with options" in the Dow Ultra Short position ... but hopefully someone who is professional is doing it.)
If you are concerned with the over-exposure to the Long side, simple redistribute your shares so that your porfolio is more balanced, or just sell off some positions and go to cash.
Mandelbrotset Exposed
http://www.elitetrader.com/vb/showthread.php?s=&threadid=169607&perpage=6&pagenumber=7
Quote from cashmoney69:
I'm long 5 different positions, and short 1. One of those longs is the DXD (dow ultra short)
I never like being all long or short in my account, I like to spread out my risk, but my questions is, whats the best way to do this?
buy puts on all my long positions or just do what i did and go long the short ETF?
thanks
note: the position circled in blue is my hedge...good thing i had it too.
One way to do it is find the beta of each individual stock, go
Beta x price x number of shares you own, then divide that by the price of the spy's
this will give you the exact amount of spy shares you need to short to remain market neutral. Obviously you dont hedge the dow ultra short etf like this.
Quote from dwl603:
One way to do it is find the beta of each individual stock, go
Beta x price x number of shares you own, then divide that by the price of the spy's
this will give you the exact amount of spy shares you need to short to remain market neutral. Obviously you dont hedge the dow ultra short etf like this.
Good point. Too many forget to check their Delta's. You can figure out your total exposure using dwl603's math on your whole book. Yes, I like to be hedged overnight. My overnights are bets on outperformance of peers or index, not always just directional.
Most traders on here know this, but since you asked here is an example:
If you are long an energy name with a 2.25 delta and decide to hedge with XOM (which is a .85 delta or thereabouts) a market neutral hedge would be 2.65x of XOM the $ amt you are long in high beta name. Oftentimes you will see your undervalued high beta name unched or so in a down energy market let's say, because its cheap or has gotten too beaten down that's why you're long, and you clean up on your 'hedge'. Too often I find people puzzled thinking the are hedged because they only went dollar-neutral, or shorted the same dollar amount in hedge.