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Hedging price

Discussion in 'Options' started by Venrcew, Dec 15, 2016.

  1. KiwiDon

    KiwiDon Active Member

    Hi jpluto

    It is indeed the "64 million dollar question"....I'm not sure if this adds anything to your deliberations, but I posted some links to John Locke and Jim Riggio discussing account protection here: https://forums.capitaldiscussions.c...ss-that-12k-what-to-do.1462/page-2#post-11448

    Here is another perspective (viewed from the other angle of expectations) on this topic from someone whose opinion I also respect: http://www.the-lazy-trader.com/2017/04/how-has-your-trading-style-changed.html

    Of course, the other option (if you have a Fidelity account to access the reduced minimums), or a spare $1 million is to plonk it all into QLENX with AQR funds: https://seekingalpha.com/article/4062226-2-funds-worrisome-market ;)

    qlenx.png
     
    Last edited: Apr 21, 2017
  2. jpluto

    jpluto New Member

    Thanks for the links KiwiDon. I'll take a look.
     
  3. Srini

    Srini Active Member

    CBOE has a tail risk management article in their website. They studied 2008 debacle and recommended few strategies.

    https://www.cboe.com/framed/pdffram...march7final.pdf&section=SECT_MINI_SITE&title=
    https://www.cboe.com/products/vix-i...egy-benchmarks/cboe-vix-tail-hedge-index-vxth
    There are ETF's which tracks similar strategy published in the article.
    Snap1.jpg

    It shows fallacy of backtesting without any sound economic reason. They are always fighting the last war. Forget about wall street quants/goldman traders designing well designed hedge. In fact prey that they don't cause black swan. They are responsible for all the recent blackswan events. 1987 with the portfolio insurance, 1998 LTCM collapse by none other than noble lariats and CDO induced recession in 2008 . Even well respected Lehman Brothers with their prowess of bond trading and risk management went down.

    One needs common sense in hedging. Start with the position sizing. Do not employ naked or unlimited option trades. Use natural hedge with positive expected return when ever possible. Bonds and Gold will provide insurance for equities. Short gamma trades will benefit from positive skew of managed futures as some one mentioned. Even this will suffer from sudden reversal (momentum crashes). Long volatility has negative expected return. There is no way getting around it. There are myriad ways of reducing the financing cost of long vol, but then you are reducing the effectiveness of your hedge.
     
    Last edited: Apr 21, 2017
    Paul Demers likes this.
  4. jpluto

    jpluto New Member

    One more question on the topic of hedging using VIX calls. Would it be cheaper to hedge using VXX calls instead or is 30 days too long of a hold on an instrument like VXX? Curious if anyone here is using either as a black swan hedge.
     

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