Hedging trading methods for spot (contract) and options
This issue talks about spot (contract) and options hedging methods.
Assume that the spot position is $100,000 and the option margin is $100,000.
The average spot price is A.
Hedging method: sell out-of-the-money call options, the exercise price is A times 1.02, the option period is daily settlement or weekly settlement, which is optional. If you are optimistic about the spot rally, you can choose monthly settlement, and the exercise price is set to A times 1.1.
After hedging, the profit and loss status on the expiration date of the option:
1. The spot price does not rise. After the option expires, the profit will be automatically settled. The proceeds are royalties.
2. The spot price rises slightly but does not exceed the exercise price, and the option will automatically settle for profit upon expiration. The income is the spot increase + premium.
3. The spot price dropped slightly, and the profit from options covered the spot drop. The income is the premium-spot decline.
4. The spot price plummeted, options expired to make profits, and the overall market value dropped. The loss is the premium-spot drop.
(In this case, if the spot market value decreases, you can continue to sell daily options based on the exercise price A to cover the spot losses. If the spot continues to fall and exceeds the coverage of the options, the options can be appropriately changed to weekly options. At the end of the month, increase premium income and hedge spot losses. At the same time, adopt auxiliary strategies to increase profits. In this case, even if the spot price plummets and is discounted by half, you can still achieve success by selling bear market spread strategy options on a daily or weekly basis. Obtain stable cash flow and wait for spot prices to rebound.)
5. Spot prices skyrocketed and options suffered losses. The income is the spot increase - the option loss, and the calculation method is the spot increase * (1 - option delta value).
(Explanation of the principle: The spot delta value is 1, and the option delta value gradually increases from virtual value to real value, from 0.1 to 1. Therefore, in the case of sudden surge, the spot profit is much higher than the option loss, and it can be hedged Profit.)
To sum up, regardless of extreme market conditions or ordinary sideways trading, negative declines, or slow rises, option hedging can effectively increase returns, with an average annualized rate between 100% and 150%.
By judging the operating status and trend of the market, you can also use insurance strategies, collar strategies, etc. to hedge against retracements and lock in profits.
I hope everyone will study options trading seriously, use this derivatives tool to hedge risks, and get rich together.
