Anybody watching this. You can’t sell 4 calls when you only have 200 shares of a stock 1 contract is equivalent to 100 shares of the stock owned 4 contracts will equal to 400 shares which you don’t have so that makes no sense what he said and delta changes when the price of the stock changes selling an atm( at the money) call will only put your shares at more risk of being assigned of selling those shares. To really hedge you’ll have to sell weekly calls for short term gains on the stock since on the weekly even if a stock was to go up $100 it’ll come back down the best to do is to know the trend of that stock and know what calls to really sell. Example if you know your stock moves on average $10 a week it’d be best to sell a call that’s $15 higher for that week or even at that $10 mark so you know you’ll still keep your credit and your shares for that week and just keep doing it over and over and keep collecting premiums while keeping your stocks on the long run as well. Don’t go waste your long term shares for some short quick profits be smart
I would assume he actually means naked calls/puts in general. Yea your right, that threw me off at first too. Good logic though, I'm slowly working my way back to options...been a couple of years. Got too aggressive a couple of years ago and got burned pretty bad. Didnt blow my account, but it was enough for me to take a break from them.
with the volatility is low, you can buy volatility with delta hedging doing the oposite. Sell the stock and buy a 2x call ATM neutralizing the delta. You will have less tetha affecting the position. so, short position in stock with long position in call is good too
If Im long the stock and buy protective delta 1 put, that would negate any upside profit when the stock moves up and vice versa (taking into acct for the changing of the delta). So there is no point in buying that put since there is no benefit no matter what happens, right? So then how do you hedge your shares with puts while still being profitable when the shares move up in price?
i hve been in TA since 2018 and its very hard to know the direction most of the times...i never got time to enter in options and what i see in this video is all new and tough to understand...
Is it hedging when I buy or sell an equity, and upon noticing it's going up or down respectively (the way I don't want it to go) I buy either calls or puts depending? Then at least it seems I can break even easier than waiting for the equity, or whatever undelying or instrument say WTI Crude Oil to go back to the price I sold or bought it
Your question is hard to understand as worded. Correct me if I am wrong in my interpretation here as well. If you buy a stock and it subsequently went down you would not want to then sell calls or buy puts against it. The reason being in the case of calls you would get less premium and have to pay more for the puts. A married put or a covered call works best if done together both with the stock and option this way the call defines your break even lower than your purchase price and a put determines your max loss married with stock. I am a big fan of selling a upside call to buy a downside put. For me that is a good strategy as you can participate in upside by the call strike being higher than the current stock price. In addition the premium from the sold call subsidizes the purchase of the protective put on the downside. This essentially creates both a buffer in max gains and max losses. Defining risk is always important and options are a good way to do this. Sorry for rant please let me know if this helped!
Hedging works when the trend returns to the hedged Long Short positions but if the trend doesn't return to the hedged Long Short entries there would be loss of the opposite position
really the only scenario where I would execute a perfect hedge is if I was long stock and wanted to secure profits, where I would go with a collar (long OTM put + short OTM call for a credit), but outside of that I typically underhedge - totally up to you though!
@@d4munche3z Delta is the partial derivative with respect to price (for a call for instance)=>as you move toward the expiration date it affects N(d1) that would be equal to N(d2) in this case... meaning the probability of a call being above the strike price or not ... and Delta, in this case, is equal to N(d1) so for a call if S goes to infinite in black and Scholes then dS/dS=1 and so delta would be 1 as max value ..etc..
Lets say you own 100 shares @ 10 and sell 1 covered @ 12 .. if the price moves to 12.1 wouldn't you risk losing your shares and being left hanging with nothing?
You would be left with net profit. You'd make $200 on the increased stock price between 10 and 12, and you'd also make whatever you sold your call for in the first place. The short call would turn into short shares at expiration if it's ITM, and your shares would be called away. Net profit overall.
You own 200 shares but are selling 4 Call contracts (400 shares) to Perfect Hedge? Also Delta changes when the price moves... This strategy makes no sense.
This makes no sense. A call option merely gives you the right to buy a certain stock at a certain price, selling a call option to someone on stock you own doesn't in any way hedge against it falling.
It does actually - the short call is sold for a credit, reducing the cost basis on the shares you own. If the stock falls, that short call loses value due to delta, and effectively hedges some of the potential loss on the shares. Selling a call against shares also enables you to profit even if the stock doesn't move, since that call would eventually be worthless if sold OTM and remains OTM.
@Abitamim Bharmal ya but you can also own 100 shares, and sell put options, if the price stays up, you collect premium, if price goes down... well you already own shares to give back and you can just buy more shares at a lower price.
6+ years later. Still excellent info today. Especially delta hedging.
Anybody watching this. You can’t sell 4 calls when you only have 200 shares of a stock 1 contract is equivalent to 100 shares of the stock owned 4 contracts will equal to 400 shares which you don’t have so that makes no sense what he said and delta changes when the price of the stock changes selling an atm( at the money) call will only put your shares at more risk of being assigned of selling those shares. To really hedge you’ll have to sell weekly calls for short term gains on the stock since on the weekly even if a stock was to go up $100 it’ll come back down the best to do is to know the trend of that stock and know what calls to really sell. Example if you know your stock moves on average $10 a week it’d be best to sell a call that’s $15 higher for that week or even at that $10 mark so you know you’ll still keep your credit and your shares for that week and just keep doing it over and over and keep collecting premiums while keeping your stocks on the long run as well. Don’t go waste your long term shares for some short quick profits be smart
I would assume he actually means naked calls/puts in general. Yea your right, that threw me off at first too. Good logic though, I'm slowly working my way back to options...been a couple of years. Got too aggressive a couple of years ago and got burned pretty bad. Didnt blow my account, but it was enough for me to take a break from them.
I knew something about options and hedging. Now I know, I know nothing...
Hedging basically widely used by fund manager to secure profit
I know this stretgy and use it continuesly & earning good profit still now
Thanks a million for your invaluable content
This all went over my head
with the volatility is low, you can buy volatility with delta hedging doing the oposite. Sell the stock and buy a 2x call ATM neutralizing the delta. You will have less tetha affecting the position. so, short position in stock with long position in call is good too
when over hedge and you have a net negative delta,wont that just make it a directional bet?..being that i should profit from any downwards movement
If Im long the stock and buy protective delta 1 put, that would negate any upside profit when the stock moves up and vice versa (taking into acct for the changing of the delta). So there is no point in buying that put since there is no benefit no matter what happens, right? So then how do you hedge your shares with puts while still being profitable when the shares move up in price?
Love this gotta get myself to this level
i hve been in TA since 2018 and its very hard to know the direction most of the times...i never got time to enter in options and what i see in this video is all new and tough to understand...
How much your margin
Is it hedging when I buy or sell an equity, and upon noticing it's going up or down respectively (the way I don't want it to go) I buy either calls or puts depending? Then at least it seems I can break even easier than waiting for the equity, or whatever undelying or instrument say WTI Crude Oil to go back to the price I sold or bought it
Your question is hard to understand as worded. Correct me if I am wrong in my interpretation here as well. If you buy a stock and it subsequently went down you would not want to then sell calls or buy puts against it. The reason being in the case of calls you would get less premium and have to pay more for the puts. A married put or a covered call works best if done together both with the stock and option this way the call defines your break even lower than your purchase price and a put determines your max loss married with stock.
I am a big fan of selling a upside call to buy a downside put. For me that is a good strategy as you can participate in upside by the call strike being higher than the current stock price. In addition the premium from the sold call subsidizes the purchase of the protective put on the downside. This essentially creates both a buffer in max gains and max losses. Defining risk is always important and options are a good way to do this.
Sorry for rant please let me know if this helped!
Good work sir.
Thanks a lot!
Hedging works when the trend returns to the hedged Long Short positions but if the trend doesn't return to the hedged Long Short entries there would be loss of the opposite position
Led Zep.. Woohoo!!
Quiet, you want to get sued?
thanks for the info. In what situation will you deploy
really the only scenario where I would execute a perfect hedge is if I was long stock and wanted to secure profits, where I would go with a collar (long OTM put + short OTM call for a credit), but outside of that I typically underhedge - totally up to you though!
how would you factor in and adjust for theta if it was a prolonged trade?
what do you mean specifically?
@@tastyliveshow as the options move further toward expiration wouldn't that change the delta value as well? If all else is equal.
@@d4munche3z Delta is the partial derivative with respect to price (for a call for instance)=>as you move toward the expiration date it affects N(d1) that would be equal to N(d2) in this case... meaning the probability of a call being above the strike price or not ... and Delta, in this case, is equal to N(d1) so for a call if S goes to infinite in black and Scholes then dS/dS=1 and so delta would be 1 as max value ..etc..
Theta-hedge
Great video
Sir give example so we can understand 💯👍
Thanks. Helpful video.
This makes sense to me, but I can see why it could go over someone's head.
Excellent.
Lets say you own 100 shares @ 10 and sell 1 covered @ 12 .. if the price moves to 12.1 wouldn't you risk losing your shares and being left hanging with nothing?
You would be left with net profit. You'd make $200 on the increased stock price between 10 and 12, and you'd also make whatever you sold your call for in the first place. The short call would turn into short shares at expiration if it's ITM, and your shares would be called away. Net profit overall.
@@tastyliveshow Got it :) thank you so much!! ❤️️
He came here to know hedging now i don't know bo & co.. i will be back
I could not stomach the entire video
TreeHugger Joe why not?
delt-huh
Thanks mate
Sir make the video class in between 9 to 11 min.. to make it understand better...
You own 200 shares but are selling 4 Call contracts (400 shares) to Perfect Hedge? Also Delta changes when the price moves... This strategy makes no sense.
it's the delta that matters, not the number of shares per se
What are you looking at?
This makes no sense. A call option merely gives you the right to buy a certain stock at a certain price, selling a call option to someone on stock you own doesn't in any way hedge against it falling.
It does actually - the short call is sold for a credit, reducing the cost basis on the shares you own. If the stock falls, that short call loses value due to delta, and effectively hedges some of the potential loss on the shares. Selling a call against shares also enables you to profit even if the stock doesn't move, since that call would eventually be worthless if sold OTM and remains OTM.
Warren Buffet makes money by following this strategy
@Abitamim Bharmal ya but you can also own 100 shares, and sell put options, if the price stays up, you collect premium, if price goes down... well you already own shares to give back and you can just buy more shares at a lower price.
I am not sure mike even knows what he is talking about, great videos though!
This shit makes no sense,.. lmao (don't worry. it just me)
His forehead look like half dome in Yosemite. But otherwise good info.
Wtf bro
hedging sucks