Jump to content



Photo

Time to get GAS?


  • Please log in to reply
6 replies to this topic

#1 dougie

dougie

    Member

  • Traders-Talk User
  • 7,832 posts

Posted 08 December 2020 - 01:18 AM

UNg looking tempting here



#2 flyers&divers

flyers&divers

    Member

  • TT Patron+
  • 1,102 posts

Posted 08 December 2020 - 10:09 AM

Fundamentals don't look good but the next 90 days are a window for some emotional weather related swings.

I am not buying into this outright but in the last two days have taken bullish put option spread positions.

 

http://www.equityclo...seasonal-chart/

 

F&D


"Successful trading is more about Sun Tzu then Elliott." F&D

#3 flyers&divers

flyers&divers

    Member

  • TT Patron+
  • 1,102 posts

Posted 11 December 2020 - 10:08 AM

Looks like there is more upside but I have liquidated my bullish put option spread positions today.

would reenter on weakness. I have to concentrate on how to hedge my overall portfolio.

 

F&D


"Successful trading is more about Sun Tzu then Elliott." F&D

#4 Smithy

Smithy

    Member

  • Traders-Talk User
  • 1,541 posts

Posted 11 December 2020 - 01:02 PM

f&d, I wondered if I might ask you a question. Suppose you owned $100k of GDX and you thought it would drop for the next month, how would you hedge it?



#5 flyers&divers

flyers&divers

    Member

  • TT Patron+
  • 1,102 posts

Posted 19 January 2021 - 12:04 AM

Smithy, I have been absent from the Board for a while so I could not answer your question in a timely manner.  

 

Looking through the rear view mirror on December 11 GDX closed at 34.58 so 100K would have represented 2777 shares.

There is no GDXS ETF any longer but one could buy DUST shares which are equivalent to - 2 GDX shares so 1389 DUST shares = -2777 GDX shares.

 

Between Dec. 11 and Friday's close 2777 GDX lost .50/share for a total of - 1388

Between Dec. 11 and Friday's close  1388 DUST L O S T .50/share for a total of - 698

so that hedge would have cost you $2086 plus commissions plus cost of financing the DUST purchase.

Pretty shocking!

Also while one could buy the GDX on margin, I am not certain one could margin the DUST ETF because it is 2X short.

 

Some of the lag of the DUST performance must be among other things due to the manager paying borrowing costs to be able to short GDX shares and having to turn over the dividends on those shares to the owner of the GDX shares.

I would not think they are shorting the very member stocks of GDX .

 

Buying an Inverse ETF for protection is not time limited. The hedge can be taken off or put back any time.

Also the protection is unlimited in terms of price movement on the down side. If GDX dropped to zero one would be protected. on the upside the gains would be capped at the price the hedge was initiated.

The prices in the example above are not exact, in some situation the cost could be less or even positive.

 

GDX has a very liquid option market so another way to hedge is with buying limited protection with initiating a collar option position. The Collar Option strategy is designed to protect gains on a stock you own or if you are moderately bullish on the stock. It involves selling a call on a stock you own and buying a put. The cost of the collar can be offset in part or entirely by the sale of the call. Looking at IB's option quotes right now one would try to buy 18 Feb 21 33 puts for $90 ea for -$1620 and simultaneously sell 18 Feb 21 36 strike calls and collect $100 Each +$1800 This would represent protection until Feb 21 because both option positions expire on that date. This has more moving parts then the simple buying of inverse ETF so takes more skill and needs more room for error and one's stock may be called away. There are choices to be made selecting the starting parameters when it comes to time and distance of puts and calls to the losing price of the stock. All these nuances affect the outcome. Also by tweaking some of the parameters one can shift the hedge to be more effective in bearish or bullish conditions.

 

This type of hedge is time limited because of the options expiring but it can be put back or rolled with different options further into the future. 

If the stock rises beyond the strike price of the call then the gain is 100pct capped from that level and on the downside if price drops under the strike price of the put the stock is protected down to zero.

 

The simplest hedge may be to short 2777 shares of GDX in a separate account:). Who knows if that's legal:)  DYOD.

 

Insurance cost money and any of these techniques end up costing some money.

There is a technique that is actually cash flow positive.

The best hedge IMHO is hedging continuously which means having a systematic call writing program (covered call strategy) where one holds stock, collects dividends and every week sells slightly out of the money calls. The sums collected in such a way keep reducing the average price of one's holdings and more then make up losses from any downswing over time.

 

Best,

F&D

 


"Successful trading is more about Sun Tzu then Elliott." F&D

#6 Smithy

Smithy

    Member

  • Traders-Talk User
  • 1,541 posts

Posted 19 January 2021 - 09:03 AM

f&d, thanks for such a detailed reply. I appreciate your expertise.

I'm going to look into the last, it seems the least costly, lol.



#7 flyers&divers

flyers&divers

    Member

  • TT Patron+
  • 1,102 posts

Posted 19 January 2021 - 01:01 PM

You are welcome Smithy,

 

They are tons of good instructional videos on YouTube on the subject.

Start with hundred shares and get a feel for it.  Luckily, when writing weekly options you don't  commit your shares for more then a week at a time.

You can stop writing if conditions warrant it or don't hedge all the shares when a move with volume confirmation is under way.

The key is not too be too greedy. While hedging your entire position is an outsize decision writing call on a few hundred shares when prices are at the top of volatility bands is not. 

 

Best,

F&D


"Successful trading is more about Sun Tzu then Elliott." F&D