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Swing Trading Stock Portfolio (EOD) - Hedging?
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Swing Trading Stock Portfolio (EOD) - Hedging?

  #1 (permalink)
Elite Member
Stockholm
 
Futures Experience: Intermediate
Platform: NinjaTrader, Multicharts, Tradestation
Favorite Futures: US and Canadian Stocks
 
ikeaboy's Avatar
 
Posts: 59 since Jun 2010
Thanks: 21 given, 5 received

Swing Trading Stock Portfolio (EOD) - Hedging?

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

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  #2 (permalink)
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  #3 (permalink)
Trading Apprentice
Kuala Lumpur, Malaysia
 
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ikeaboy View Post
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

1. You need stocks screener to help finding the right stocks to short. Please find this only for educational purpose (FINL, IACI, MLNX, SHLD, TIBX, ABX, AU, BVN, CLF, COH, DRI, DVN, ESI, FDO, FE, GFI, HLF, KO, NEM, PBR, PCG, SE, TEVA, WCG, WLT)

2. Much more effective to have individual stocks stop loss target, at the same time have short positions using put options on weak stocks, so you already naturally hedge.

3.Yes I am using options exclusively to swing trade options with great ROI.

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  #4 (permalink)
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1. I am screening for stocks to short - however as I said when everything is going up it is difficult to find good shorts

2. Not sure if I understand you correctly? - Did you mean using Stops/Targets on Stock Swing Trades? I of course do.. The risk I am talking about comes from overnight gaps..

3. Could you explaing that a bit furher please? What is you average holding time? And what combo do you use? Just Calls and Puts on their own or Spreads etc?

thanks

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  #5 (permalink)
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ikeaboy View Post

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

Some of the questions are above my pay-grade but I will offer some suggestions for you to do some research and point you in the right direction:

If you want to hedge on a short term basis, there are weekly options on the all of the popular Indexes (aka there are always Options you can buy on Monday that will expire Friday) so they will be relatively inexpensive and the puts offer downside protection.

Another option is VIX options. VIX = Volatility Index. Basically, markets move higher slowly but move down quickly, so if the market is expecting a move lower, then there will be a spike in the pricing of the VIX that can offset the losses your portfolio takes

Another option is day trading leveraged ETFs on bearish days. The way these work is that is is 3x the leverage of regular sector ETFs so if the regular underlying goes down a penny, the bullish leveraged ETF will go down 3 pennies and the bearish leveraged ETF will go up 3 pennies. One thing to note about this is that from what I understand, they are only good for day trading. Holding overnight often results in a loss because of the way it is structured


I too use options exclusively to swing trade options as well. It allows me to have a more diverse portfolio because it ties up far less capital. One thing I want to stress though is that options are a leveraged instrument so you need to have tight stops so that you don't get smoked.

I have a journal on swing trading options here if you are interested.

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