I would be interested in any approaches people are taking to
hedge long term holdings with options hedges, collars , condors ,
or straight puts or calls.
... Puts 75% more expensive than corresponding calls ... collars
not a very good deal at the moment ... perhaps a put spread if a
bit faint to go naked on puts?
Spreads can strictly control the risk versus reward ratio. If
they are kept very tight.
Thus, if one (making up all of this from thin air) sells a
SPY175 put and buys a SPY174 put for a net credit of, oh $0.50 per
spread, then the risk reward ratio is exactly 2:1 [Gain $0.50 or
lose $1.00]
Of course one might multiply that '2' by one's perceived
probability that the price of SPY will be under $175 near the
expiration date. Thus, assume 67% probability and the new deal is
1.34:1. Not a bad wager, if one has checked the charts and feels
this makes sense.
It is rare (yet not unheard of) for options with lots of premium
remaining to be exercised, as this is a loss to the (former) holder
of the premium.
SPY Hedging Ideas, Collars , Spreads
Posted by cmunny on 27th of Jan 2014 at 09:45 am
I would be interested in any approaches people are taking to hedge long term holdings with options hedges, collars , condors , or straight puts or calls.
Periods of high volatility are
Posted by cubby on 27th of Jan 2014 at 10:11 am
Periods of high volatility are a good time to sell premium, not buy it.
So anything that is a credit works to capture profits (vega is the term, I think). If someone confirms or corrects this, then thanks!
Selling a put is functionally the equivalent of a covered call, which is obviously selling premium.
Thus a put-sell is a means to own at lower price and profit from both vega and theta.
Cheers!
Yes, it appears puts are 75% more expensive
Posted by cmunny on 27th of Jan 2014 at 10:36 am
... Puts 75% more expensive than corresponding calls ... collars not a very good deal at the moment ... perhaps a put spread if a bit faint to go naked on puts?
Spreads can strictly control the
Posted by cubby on 27th of Jan 2014 at 10:49 am
Spreads can strictly control the risk versus reward ratio. If they are kept very tight.
Thus, if one (making up all of this from thin air) sells a SPY175 put and buys a SPY174 put for a net credit of, oh $0.50 per spread, then the risk reward ratio is exactly 2:1 [Gain $0.50 or lose $1.00]
Of course one might multiply that '2' by one's perceived probability that the price of SPY will be under $175 near the expiration date. Thus, assume 67% probability and the new deal is 1.34:1. Not a bad wager, if one has checked the charts and feels this makes sense.
It is rare (yet not unheard of) for options with lots of premium remaining to be exercised, as this is a loss to the (former) holder of the premium.
I hope you are right
Posted by sbwoman on 27th of Jan 2014 at 10:25 am
I hope you are right cuz thats what I'm doing.