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Hedging/Insurance for M3 Type Trades

Discussion in 'Options' started by Rod M, Apr 4, 2015.

  1. Rod M

    Rod M Well-Known Member

    Since volatility is kicking up on our trades, I was wondering if any of you have a viable strategy for hedging/insurance on your M3's, etc. If so, Would you mind sharing how you do this

    Because of the steep expiration curve of weeklies, I find that hedging with them can easily eat up all of your profits on a given monthly trade. I have also looked at alternatives such as selling one OTM put and then buying two further OTM puts. This is fine for the first couple of days and then expiration begins to set in and the longs expire faster than the shorts, so the insurance component goes away.
     
  2. ACS

    ACS Well-Known Member

    Rising volatility on its own will have the effect of turning the clock back and delaying the rise of the T+0 line. That means staying in the trade closer to expiration since the T+0 line inside the tent will eventually have to rise. If that rising volatility is the result of a choppy back and forth market then I've heard John Locke say the best thing to do is stay a little looser with the trade and not over adjust on every swing. If the rise in volatility is from a big decline then that is the one situation where the M3 can hit max loss even if traded correctly. The solution to that would seem to be extra puts but I'm not sure the cost is justified over the long haul where they are a drag on the return when you don't need them and very expensive if you wait until you do.
     
  3. Rod M

    Rod M Well-Known Member

    thanks.
     

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