Tuesday, December 12, 2006

Hedging your positions..

When the market turned today, unfortunately my Call stock options did turn down in price as the volatility kicked up and the strike prices became further away. Some are still in the green, longer term options stayed the same and the other 50% of the Call options lost value. I was ready for the downturn in the options value and decided to hedge my positions by Shorting the NASDAQ 100 Futures.

What I didn't realize at the time was that I would be making even more money than I had planned, by planning ahead. A good rule of thumb is to Plan your Work, and Work your Plan. I thought I would just go ahead and try and protect the gains I had already made, and hedge my positions. Instead of betting against the Stock Options I had in place which would require MUCH more effort, research, and let's not forget commissions cost, I decided to short the Nasdaq 100 Futures Contracts (ERT). Here's how you calculate what you can make day-trading the Nasdaq 100 Futures contracts, $0.10 scalp is worth $10 for E-Mini Nasdaq.

My Call Options were down about a total of (-$5,000) today, the Best Buy Calls killed me.

I ended up making out nicely on the hedging position with the Nasdaq Futures trade in which I scalped 9.45 points. Worth a total of $3,213.00


Anonymous said...

Wow. What if your scalp went against you by 9 points? Your positions would probably still be down -5000 and you would have been out another -3500. I would call this more luck than anything. Anyway, nice trade.

Cal said...

What people fail to realize is that when the market is tanking you can easily scalp the Futures market for 5 points or more on as many contracts as you chose, this is called hedging, if you already have a long position in place. If the market is tanking on bad news where is the risk? Where?