Swing Trading Stock Portfolio (EOD) - Hedging?

[tranquilizer85]

I am trading US and Canadian Stocks EOD... I am holding the positions between 1 and 10 days and I am positioned long and short. I hold between 10 and 40 positions at a time...

However, since those stocks a greatly correlated to the overall market the diversification of the portfolio is rather diminished...

I am always trying to balance the portfolio with long and short position to be "safe" when for example the market crashes severly overnight...

However since in a bull market it is difficult to find good shorts and vice versa for a bear market I am often positioned rather one way... e.g. 20 Longs and 10 Shorts - or 80K Long and 40K short... So i would be still +40K at risk when the market gaps down huge overnight...

Since I have only basic knowledge in options I wanted to ask if it makes sense to hedge the portfolio with for example a Long Put on the SP500 or Nasdaq etc... Or some Spread to reduce the costs of the hedge...

However, since the hedge would be rather short (considering the average holding time of a week) I am wondering if this can be done in a meaningful way considering the different factors which influence the option price...

Btw, would it be possible or make sense to use exclusively options to "Swing" trade stocks?

thanks a lot

 

[wino59]

I am trading US and Canadian Stocks EOD... I am holding the positions between 1 and 10 days and I am positioned long and short. I hold between 10 and 40 positions at a time...

However, since those stocks a greatly correlated to the overall market the diversification of the portfolio is rather diminished...

I am always trying to balance the portfolio with long and short position to be "safe" when for example the market crashes severly overnight...

However since in a bull market it is difficult to find good shorts and vice versa for a bear market I am often positioned rather one way... e.g. 20 Longs and 10 Shorts - or 80K Long and 40K short... So i would be still +40K at risk when the market gaps down huge overnight...

Since I have only basic knowledge in options I wanted to ask if it makes sense to hedge the portfolio with for example a Long Put on the SP500 or Nasdaq etc... Or some Spread to reduce the costs of the hedge...

However, since the hedge would be rather short (considering the average holding time of a week) I am wondering if this can be done in a meaningful way considering the different factors which influence the option price...

Btw, would it be possible or make sense to use exclusively options to "Swing" trade stocks?

thanks a lot

The best way would be to by a straddle and then by and sell your stocks based on the delta. This way you are hedged in either direction. The only thing you have to worry about is theta decay, but being a position 10 days is not that long to lose that much, the longer out you buy the straddle, the less theta decay.

Also you can buy and sell the stocks based on the delta so that you remain delta neutral, yet making money on the swings of the stock. The idea is not make money on the straddle, but use it as insurance, and use the deltas to hedge the position.