DashRiprock
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Yes, you're right. I had assumed that he would be trading a fixed $/pip and not earning/paying any carry on the notional.
Hedging
- Thread starter volatiliti
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Yes, you're right. I had assumed that he would be trading a fixed $/pip and not earning/paying any carry on the notional.
Hoggums
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Amen to that!
Putting on a reverse of your trade to effectively zero your exposure is no different to closing the trade other than you are paying double the spread.
there is no advantage in doing this. You are just as well off placing the next trade as/when you would have cancelled your hedge. In fact you are much worse off because the positions are using up margin in your trading account.
What you are doing is psychologically handicapping yourself because in your mind you are never closing out the trade, so all your decisions will be based on what you are going to do with "that" trade rather than thinking about a starting new trade from a fresh and empty portfolio.
You need to look at your psych and come to terms with the fact you are unable to take losses at present. This is an all too common newbie mistake and you will never become a profitable until you can overcome this.
DashRiprock
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NVP
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hey all..........interesting thread :smart:
to me theres 2 steps in simple trading (the kind I understand)
1) Enter Trade
2) Exit Trade
the outcome of Profit or Loss is determined by the difference in these 2 prices above and any trading expences on the spread and any other costs of carrying
Conventional Trading approaches involve Exiting a (Losing) Trade through nominal or hard Stop losses as usually programmed in at entry point - (money/risk management 101)
what is being proposed here is not "taking the medicine and moving on" as prescribed above , but deferring the Loss to a future / indeffinate period accepting also whatever carry costs are involved
its an interesting idea and clearly based around the premise that the deferred loss position may eventually transform into a b/e or even profit position over time due to mean reversion or trend cycles or whatever else you want to call it
At this time the position is finally closed and you have therefore not lost money at all verses taking the Loss in the conventional trading approach already discussed
whether this makes you a more successful trader (vs stop loss etc etc) in the long run is totally aligned around your own method of trading and how you identify your Entries.......and also if you prefer to think that you have never lost a single trade ever......you just have a few deffered trades that are waiting to become b/e or Profitable in the future !
(also if one is a consistently cr*p trader then nothing will save you)
and if this is hedging or not ? - apologies but I am not qualified or experienced in that particular field enough to comment....
N
to me theres 2 steps in simple trading (the kind I understand)
1) Enter Trade
2) Exit Trade
the outcome of Profit or Loss is determined by the difference in these 2 prices above and any trading expences on the spread and any other costs of carrying
Conventional Trading approaches involve Exiting a (Losing) Trade through nominal or hard Stop losses as usually programmed in at entry point - (money/risk management 101)
what is being proposed here is not "taking the medicine and moving on" as prescribed above , but deferring the Loss to a future / indeffinate period accepting also whatever carry costs are involved
its an interesting idea and clearly based around the premise that the deferred loss position may eventually transform into a b/e or even profit position over time due to mean reversion or trend cycles or whatever else you want to call it
At this time the position is finally closed and you have therefore not lost money at all verses taking the Loss in the conventional trading approach already discussed
whether this makes you a more successful trader (vs stop loss etc etc) in the long run is totally aligned around your own method of trading and how you identify your Entries.......and also if you prefer to think that you have never lost a single trade ever......you just have a few deffered trades that are waiting to become b/e or Profitable in the future !
(also if one is a consistently cr*p trader then nothing will save you)
and if this is hedging or not ? - apologies but I am not qualified or experienced in that particular field enough to comment....
N
Last edited:
robster970
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Yep - this all smacks of 'fear of failure' and the 'need to be right'.
And again, just to reinforce what I've said, what CV has said and what others have said - this is not hedging.
nstansbury
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Volatiliti,
It's a shame my very first post on t2w is against such an old one of yours, but having read so much irrational sudo claptrap in this thread I just couldn't let it lie.
As with a great many things on the internet - be careful who you listen to. Those with high post counts on t2w may well be the ones doing more talking than trading - it seems they have quite a bit of time on their hands....
Hedging is a perfectly legitimate strategy and a valid tool like any other, the poor quality of responses in this thread shows a general misunderstanding of the tool - and perhaps a case of those talking up their own book. To paraphrase - if all you know how to use is a hammer - every problem looks like a nail.
The "be a man, suck it up and accept the loss" argument proposed here smacks of a "lunch is for wimps" philosophy, and anyone arguing that hedging is for losers needs to amply explain the international Options market - insurance is a big business - and a useful one at that.
Firstly, the goal of hedging is never to make money, the goal of hedging is to reduce risk, a reduction of risk generally reduces profits, and staying within your strategy's risk profile is a perfectly valid reason to use it and accept that trade-off.
So, to give VERY specific details on hedging strategies as requested by the "experts" in this thread:
I am currently long physical Gold bullion, I have been accumulating since $850/toz and aggressively since $1050/toz - in fact I'm still a long term bull - it's done me very well.
However, last month the technicals were flashing short term weakness, not fancying any more red in my physical account after mid April, I decided to hedge my position. On 09/05/13 I bought 9x GLD July 13 Puts 130 strike @$1.29 in my spread bet account. The technicals proved correct, GLD fell, I closed on the 17/05/13 @$4.05. The trade was open for 8 days, and the profits have been used to buy more physical, it's allowed me to average down for "free".
Now this was a pure insurance play, the total position cost was $1100 to protect a physical position of $60k+. I was expecting (hoping?) to close an out-of-the money position at a loss - this is why you buy insurance. I don't have fire insurance on my house because I hope it burns down. I was fully prepared to accept a $600-$700 loss (~1%) as cost of purchasing my insurance, as it happens it's worked in my favour and I averaged down on my physical with "free" money.
My next example is today. I went long on the FTSE on 10/06/13 @6389. I'm testing a new strategy so I have no stops currently, and am using Options instead because I don't want to get stopped out.
I got massively out of position and so a limit order was opened - FTSE July 13 Put at a strike for 6400. Buying an option well ITM with a delta of 1 ensured that I'd get a 1:1 change against the FTSE yet still keep plenty of intrinsic. My 1st rule is no intra-day - I only trade on closing prices, I looked again last night and I couldn't see a mistake in my fundamentals - I'm still betting on an upswing, I'm just a few days early. So having an option well in the money meant I sat still today and didn't care what happened. I've made my accepted loss already, and I've spent a few quid on insurance - I was never going to lose more than I already had lost, the option insulated me from whatever happened today. As it happens the FTSE swung 100pts and closed up 5 - we'll see if I'm still wrong tomorrow. Perhaps.. but perhaps not.
The key point is I don't care, the Put has my ar*e covered. If I'm right a £50-£100 insurance bet has allowed me to not book a £1000 loss for being early. Seriously… how many brain cells does that call take?
The exit is simple - sell the ITM Puts for a profit and trailing stop out the loss making position a bit lower. If I'm near the bottom I might get lucky - if not I don't care.
The final point about the margin nonsense mentioned by another poster is that my account won't get a margin call because the Put gains offset the loss of the long in my account. So far from it hurting my margin, it's helped it.
So, in a day when my chosen market swung around like a drunken monkey, I sat back, fully insured, and watched other peoples stops getting nailed.
As you rightly implied - timing is everything and insurance allows you to get your bet right but your timing wrong. As the old saying goes:
Just because something is inevitable doesn't mean it's imminent, hedging might allow you to play that little bit closer to imminent.
N
It's a shame my very first post on t2w is against such an old one of yours, but having read so much irrational sudo claptrap in this thread I just couldn't let it lie.
As with a great many things on the internet - be careful who you listen to. Those with high post counts on t2w may well be the ones doing more talking than trading - it seems they have quite a bit of time on their hands....
Hedging is a perfectly legitimate strategy and a valid tool like any other, the poor quality of responses in this thread shows a general misunderstanding of the tool - and perhaps a case of those talking up their own book. To paraphrase - if all you know how to use is a hammer - every problem looks like a nail.
The "be a man, suck it up and accept the loss" argument proposed here smacks of a "lunch is for wimps" philosophy, and anyone arguing that hedging is for losers needs to amply explain the international Options market - insurance is a big business - and a useful one at that.
Firstly, the goal of hedging is never to make money, the goal of hedging is to reduce risk, a reduction of risk generally reduces profits, and staying within your strategy's risk profile is a perfectly valid reason to use it and accept that trade-off.
So, to give VERY specific details on hedging strategies as requested by the "experts" in this thread:
I am currently long physical Gold bullion, I have been accumulating since $850/toz and aggressively since $1050/toz - in fact I'm still a long term bull - it's done me very well.
However, last month the technicals were flashing short term weakness, not fancying any more red in my physical account after mid April, I decided to hedge my position. On 09/05/13 I bought 9x GLD July 13 Puts 130 strike @$1.29 in my spread bet account. The technicals proved correct, GLD fell, I closed on the 17/05/13 @$4.05. The trade was open for 8 days, and the profits have been used to buy more physical, it's allowed me to average down for "free".
Now this was a pure insurance play, the total position cost was $1100 to protect a physical position of $60k+. I was expecting (hoping?) to close an out-of-the money position at a loss - this is why you buy insurance. I don't have fire insurance on my house because I hope it burns down. I was fully prepared to accept a $600-$700 loss (~1%) as cost of purchasing my insurance, as it happens it's worked in my favour and I averaged down on my physical with "free" money.
My next example is today. I went long on the FTSE on 10/06/13 @6389. I'm testing a new strategy so I have no stops currently, and am using Options instead because I don't want to get stopped out.
I got massively out of position and so a limit order was opened - FTSE July 13 Put at a strike for 6400. Buying an option well ITM with a delta of 1 ensured that I'd get a 1:1 change against the FTSE yet still keep plenty of intrinsic. My 1st rule is no intra-day - I only trade on closing prices, I looked again last night and I couldn't see a mistake in my fundamentals - I'm still betting on an upswing, I'm just a few days early. So having an option well in the money meant I sat still today and didn't care what happened. I've made my accepted loss already, and I've spent a few quid on insurance - I was never going to lose more than I already had lost, the option insulated me from whatever happened today. As it happens the FTSE swung 100pts and closed up 5 - we'll see if I'm still wrong tomorrow. Perhaps.. but perhaps not.
The key point is I don't care, the Put has my ar*e covered. If I'm right a £50-£100 insurance bet has allowed me to not book a £1000 loss for being early. Seriously… how many brain cells does that call take?
The exit is simple - sell the ITM Puts for a profit and trailing stop out the loss making position a bit lower. If I'm near the bottom I might get lucky - if not I don't care.
The final point about the margin nonsense mentioned by another poster is that my account won't get a margin call because the Put gains offset the loss of the long in my account. So far from it hurting my margin, it's helped it.
So, in a day when my chosen market swung around like a drunken monkey, I sat back, fully insured, and watched other peoples stops getting nailed.
As you rightly implied - timing is everything and insurance allows you to get your bet right but your timing wrong. As the old saying goes:
Just because something is inevitable doesn't mean it's imminent, hedging might allow you to play that little bit closer to imminent.
N
