Naked Position vs Hedged Position | Which is better? | Detailed Case Study | Optionables
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- Опубліковано 18 жов 2024
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Thank you Saketh, eye opener. I do intraday short straddle with 1500 points away hedge for margin. Everything will be closed after 2.40 PM. On an average, I have lost negotiable amount in hedge. Most of the initial days of the week, if there is a huge fall or break out, hedge gives some profit too.
It’s a fantastic video. However there is 1 more thing to consider. Due to hedges, we get margin benefits, so let’s say for 1 straddle we need a margin of 1.2L, we can short more than double the lots for the same margin for a hedged straddle, hence doubling the profits. Comparing the returns for hedged vs unhedged based on similar capital deployed would have also been more fair. But a really nice video and an eye opener
That doesn't make any sense when you hedge your profits will reduce. Hedges are for risk control not for increasing your profits. And as the expiry comes closer your margin requirements will go up
@@suryavegeta12 You completely missed the point mate.
@@BharatMataKiJaiii you could have said the point instead of giving another moot comment
@@suryavegeta12 No worries mate. Have a good day!!
@@suryavegeta12 you missed it bro
Hedge are absolutely necessary
Even insurance companies take reinsurance
Thanks pls
My God,
You're Genius
What a way conclude.
I'm fearless now.
Excellent Sir🙏
Hi Saketh,
It was an excellent analysis and new learning.
Most retail people do Short Strangle and don't do Straddle which is aggressive compared to Strangle. It would be helpful if you did a similar analysis video on Short Strangle.
Consider we take positions with CE-PE selling strikes pricing around 70-80 Rs. And the end of the day at market closure, we balance the trade until the expiry.
For ex. If CE moves to around 120/- and PE moves to around 40/-, at the closing hours we sell PE which is trading near/less than 120/-.
We keep doing this and exit on the expiry day. And again take trades around 3.20pm on Thursday for the next expiry.
Very well researched and practical guide. I was also thinking of not to pay premium for hedging but wanted some good reasons. Thanks.
Your logic is valid and that with data. But while hedging positions if one follow proper risk management and deploy 40-50% of capital and rest keep for adjustments then the returns will definately be more than naked selling. This point can't be proved with data but it's just my belief.
Everyone has their own trading style and one just needs to be best in it.
Hi Saketh, thanks for the detailed video on the topic. Agree with the view that gaps might be perceived to be more frequent than actual. In fact, my Nifty analysis from July 16-22 shows that Nifty's probability of opening within 100 points' range is like 86%.
However, I disagree with the way you approach hedges as a trading tool. Let me elaborate on some of the discrepancies I foresee in the approach.
1. While you analyse the break even points, it's important to note they are points at expiry and their relevance before it is somewhat notional. Before expiry if your shorts are within range, it's all fine but don't you think on Wednesday and Thursday gamma risk completely offsets the theta gains? Also, Hedges die faster than ATMs. Probably a good idea to sell straddle on Friday and put in hedges on Monday/Tuesday? Need some analysis on this.
2. You're missing out on the utility of hedges as a loss absorber in the event of massive gaps. Even far OTMs balloon up in case of huge IV spikes, which we can sell (bought as hedge before) and recover some of our loss due to gap. It also means we would be closing our tested short side as well. This needs to be factored in.
3. Since hedge before expiry is a theoretical concept, can't we buy faraway hedges so that while they define our risk in case of unusual gaps, we aren't hurt by huge cost of hedges on Friday as well. Margin benefits too count.
4. If we are going to risk 9 lakh for one lot, how do we ensure we are utilising our capital optimally? I mean how do we know it's gonna be more beneficial than let say 9 lots of intraday short straddle?
Happy to learn from your views. Thanks and keep up the good work.
Point no. 3 is what I do. I buy the hedges a little far away so that I get margin benefit at a lower cost. Also, I'm covered for huge gap-ups and gap-downs.
O
We must have a different perspective because we are small when compared to them. They have a huge capital and they have to fire with high returns because they manage other peoples money. They can not survive on iron condors and iron flies. 😵💫😵💫
3rd point is very valid
Hi brother ,
Good explanation. I would like to add that while comparing stock mock backtest, we should consider 3 lots with hedge to 1 lot without hedge bcoz the margin requirement will be lesser for the positions with hedge. But ROI is half of what we get without hedge. People who want to take trades with lesser capital and defined risk can still go with hedge bcoz as per your backtest it has a CAGR around 25-30% which is a great return for spending 5 mins a week.
Thanks.
Exactly, we all do hedging for margin benefit only..with the same amount as naked we can sell thrice the amount. Unless compared with different quantities, this video is misleading
@@romit exactly. When there is a gap down, the buy positions will be in profit which will minimise the losses to some extent. With an already existing buy position, we can even do adjustments
Good insight but the problem is not solved for positional traders. The question is not gap-up or gap-down but in a trending market every day it can move 1-2% and market can jump towards breakeven at the time of expiry. That may cause a huge loss !!
1-2% gap up or down might not hurt. You can adjust the position after the open, or close and also create a new one.
This video is made with that perspective
Given your experience what would be the capital requirement for 1 lot of nifty for naked overnight position. Like you mentioned 9 lakhs for BN. What would this amount be for Nifty? Looking forward to your thought?
Thanks Saketh, this is good content. Is this applicable for Intraday Short Straddle also and does the backtesting suggest NO hedging? Please clarify
Great video Saketh. Does this work for strangles? because I see a huge loss in overnight strangles without hedges. Please make a video on Gap up Gap down adjustments.
But I think you missed one point, in case of a gap up/down, the IV will increase and the option premium won't work as accurately as shown in opstra.
And 2nd thing the gaps will impact more in naked straddle when its Wednesday and Thursday, so a seperate backtest has to be done just for those 2 days, with hedge and without hedge, to get a better picture.
I think most of the traders use hedged position to reduce margin rather than to carry unlimited loss ,we can do 3lot of iron fly with the margin needed for 1 lot short straddle , Hedging is for reducing margin for the most of the retail trader
You need to deploy more capital for margin in case of naked option selling. So, I prefer hedged positions.
Please reply to such WhatsApp messages. They are all from fake IDs.
Appreciate your effort.When you hedge you get margin benifit, so instead of 1lot naked ,we can go 5 lots hedged with same margin money and make equal money as per stock mock backtest
Yes but your performance parameters will be lower
What are your thoughts on buying hedges at eod and squaring them off on market open just to control the m2m swing through gap up or down everyday? This way you get saved by some intraday decay on the hedges.
I was thinking about the same. It's a lovely thought. Have you found answer to this?
Thank you for this video. I have attended many option classes and have read some books on options trading. All of them repeatedly preach not to go to naked options because they are too risky. I always think that hedging is costlier than naked because of the extra brokerage for the additional legs and the profit being limited by those same additional legs.
I still don't dare to do naked selling, but I buy naked calls and puts. I got a good deal of profit from them during last year.
I request you to make a video on naked option buying. Once again thank you for voicing your opinion against popular belief.
The video is absolutely spot on but hedges saves u from one side moves if u place SL to short positions and this happens every once or twice a week / 2 weeks and they recover all the past losses of hedges in those days easily
Hi Saketh, Thanks for this detailed video I am watching it again and again, however could you please advise in case of gap down what adjustments to be done to minimize the loss
Great work and convincing.. You are so generous to share your hard work and findings. Thanks
Thank you
Can we get Target link to test?
Bro target launch date?
You can login to target.optionables.in
@@optionables I tried 30 min otp not received in mail
Hi bro. 2% gap down equal to 5% mtm drawdown due to IV spike.
Great explaination Saket Sir, with factual calculations.I yet not found such indept video from any other place on UA-cam. Keep it up sir and thanks for enriching us . Regards.
Thank you
Exactly. Fact driven and covers all aspect. Thank you so much Saket....
Saketh, can we connect tradingview with target app. If not, make necessary arrangements. I opened the Firststock account under your referral. Target app is free of cost for us or not . Reply me.
Explained awesome way. Thank you Saketh and team.🙌
Hi, first of all, the video is very informative and has cleared up my confusion about hedging vs naked options. I appreciate it a lot. However, I am unable to understand the concept of 9 lakh mentioned at 27:20 minutes. Could you please explain it more clearly? Thank you.
When can we expect the formal launch of Target App? I couldn't see any information about it on your website.
By next weekend, now you can use the beta version on the same website
Hello Sakith, May I know why you are solely focussed on gap up or gap down instead of drawdown until the end of expiry ? Are you saaying the during the day we need to manually take care of positions going against us ? If I am a option trader who sells Options on both sides (S & R) and just wait for the week to expire lets say I start on Friday and wait for next Thursday , irrrespective of gap up or down the market can gradually go against me and put in a big troubly by Thursday right ? So on those lines how do I control risk on my naked positions ?
Fantastic analysis with data.... Unique video from other.... really it made think of...
Hi Saketh, Thx for the video and good insights about hedging. However, I have a minor observation. Your analysis considering the % distance from the midpoint. In reality this may not be the case for positional set up. Market may take 3 or 4 days to move slowly until breakeven and jump from there as gap up or gap down. Please discuss such outliers too so that we can be enlightened. Thx much in advance.
Hi sir,
This video is a perspective of overnight gaps only. It also comes with an assumption that incase of a move we would adjust or shift the position.
As you also pointed out it might not be the case always
@@optionables Thank you so much!
@@optionables very good info, i thought the results would be just half and would same because margin will be also half
Can you make hedge vs unhedge position for intraday
With hedge, the breakeven also comes neared to atm which means probability of profit go down
Hi bro. M a retailer. Plz make a video how we get api, how to integrate, which software is required to integrate and use api data. We retailers are a bit afraid abt these tech things. It will be very helpful for us retailers bcoz till date hardly any guide video is there abt this. Will be very thankful to you for this.....sir
Unbelievable knowledge provided by you, thank you Saket, will use this thing in yearly short straddle
Hi saketh,if we applied for this to STBT nacked vs STBT hedged... which is best in your opinion
Without hedging I can not sleep.
With hedging I can sleep till 9:15.
But very very deep insights about the bank Nifty.
Learnt something new thanks, would like to check if the same works on Nifty.
PNL curve is for 1 week which mean market should stay between those breakevens for whole week. What does it have to do with the daily gap up and gap downs? We should consider the movement of 5 days right?
Hi Sir I m biggest fan you are giving full detailed videos thanks for everything
Thank you saketh for giving such a detailed explanation along with data.
Wow. Perfect video Saketh. I was pondering on the same today
Thank you
However in case of hedge you can increase your quantity to almost double with same fund. So profit will be increasing similarly.
Also mindset is more important to hold on the losing trade which is difficult in case of naked position.
This information was new for me.great job nice presentation 👏 🥰🥰
Excellent informative vedio. Thank you saket
Plz explain in which market condition we have to take straddle strategy plzzzz.
What a research . Thanks Saketh !!!
Thank you
Hey saket what about calls& puts that are about 5 rs 1200-1500 pts away ,also for intraday what SL do you suggest for short straddle??
Should check it out. Will make a detailed video after doing little bit of research from our end
i was searching for this from a very long time, thanks for presenting your view❤
Thank you
How to adjust post gapdown. So consider if i collected 800 pts at friday morning and now on monday there is 3% gapup or gap down. One leg is bleeding. What do i do? book the loss or and make it a OTM strangle Or book the profit and make it strangle by matching premium and selling another ATM leg?
Hi Saket u killed it ! I had the same doubt . U have explained well with data point. This is one of the reason u are standing out from others 👏. I have one more query when ever tried to login TARGET app it is showing site under maintenance. This app is meant only for first stock customers? Pl.clarify.
Target is fixed now, you can check it out sir
@@optionables Thank you
Sir what about short strangle,is it more safe then straddle ?
Hi Saketh, sorry to bother again - any views on capital requirement for nifty naked sell? Like you mention 9 lacs for BN
Hi saket, i am a bit confused. If I can trade one lot with 1.5 lakhs, why do i should keep 9 lakhs in my account. I am confused about what u explained in the last part of ur video..plz clarify??
What is not considered is, the total amount paid for hedging is not Gone. Specially if you use calendar hedges.
Dear Saketh, Thanks for the nice and informative video. I am an ardent fan of Optionables. Appreciate your hard work in collecting the data and analysing it to great depths.
I would like to add one point to this. For the same margin money, you can trade 2.5 lots of Iron Butterfly in place of one lot of straddle ? So, basically, the benefit for straddle is not 5 times, but only two times ? Thus, we have to equate half the benefit to peace of mind, especially during holidays ?
Yes sir, iron fly requires 50k, you make 90k
Naked requires 1.5L, but you make 4.5L
Even here naked turns out to be better
@@optionables Thanks for this info on margins. You answer almost all the doubts we have.
Very detailed explanation with data points for this topic. I was also confused about this and you just made a detailed analysis on this topic. Always looking forward for your informative videos. Keep up the good work and enlighten us with your knowledge and wisdom. Also please share the updates about the Target app and share some good intraday strategies for the current market scenario.
Excellent video, something that i was looking for sometime
Saketh....good analysis with back testing data...But position sizing for one lot is little confusing..rest of the topics are very informative. GOOD explanation..please continue to post more videos...Dr.Prasanna
Very impressive study bro. It changed our view on hedging.
No words. Just fantastic
Many thanks for very detailed video will help a lot to Traders 👌🙏
Have you tested this on monthly contract??
Keep it up saket.....good learning
I have done lazy man's VIRTUAL trading for 2 months, that is straddle of OTM options (100 point on each side). Selling at 11-11.30 am and closing the trade at 2-2.15 PM without looking in between these trading hours. With 5 lakhs, I made 75000 in 2 months. So even if you are doing a day job, you can make money without any research, without any active involvement
Any drawdowns ?
@@iamadharsh4763 it was basically virtual trading. I lost money somedays, which was very minimum, 500/750 rs. Yes, with real money, the behavioural changes will be there.
Very well explained...well researched..!!
Thank for sharing this vedio saketh
...
Saket thanks for the wonderful video I appreciate the hardwork of data crunching & nice presentation
Thank you
I am really grateful for your informative videos and the effort you guys put in here! Thanks!
Hi saketh, I see that you have considered the loss on Friday premiums. But if you closely look into the premium behaviour every day, the loss is maximum if huge gap down/up happens on Thursday morning. I think you need to consider the variation in percentage loss on each day. Nevertheless, the analysis is very good.
Very good video with data..
My inputs. The way u calculated for a year is not always true..becoz gap up n gap downs are randomly distributed.
The psychology also is a thing to address. Most of retail traders psychology will be affected while watching big MTM swings on screen .
Better strategy is to make a Naked short straddle with a fixed SL very near to expiry . I hv back tested the same with good results
It is best to hedge moderately far OTM which will give you fair protection as well as won't cost much. I think he has just taken a vanila break even hedge scenario which is very much incomplete coverage.
Furthermore the margin reduction is one more point completely sidelined in the video, especially very useful in Intraday trades.
Sharp mind boss... Different level of thinking... Highly thought provoking video.
Thank you
Strangles ka b bana do aisa 1.. appreciate ur hard work very nice video
Amazing video as usual.... Impressed 😍😍👌
Thank you sir
Jay shree Krishna
Saketh
By hedging as your view to hedging will reduce earning
But we can buy 3 lots of iron condor instead of one straddle
Is it ok?
Hi Saketh, agree with your arguments but if there is a big gap down there will be a huge IV spike (dont think you have considered it) and the loss will be more than you see in this pay off chart and huge. you dont get these many times of chances to reach the 3lak. couple of such gap downs will be enought to wash out half of the capital. I believe hedging is ok and ready to bear the hedging cost to preserve my capital and also peace of mind. I know these gap down won't happen frequently but the day when it happens that will be the end of Trading like black swan event. None can predict the future. PS: Im not a big risk taking trader...
Why can’t we hedge far off OTM still and try this same strategy ? Why hedge st break even only. As an individual I can even do 400 points away hedge instead of break even. What do you think ?
Excellent presentation Saket. But depending on your appetite multiple lots hedged position is a better idea
This is really very good analysis
I always thought hedges were overhyped. Thanks for proving me right. What if we buy hedges at 3.15 and square them off at 9.20 next day? Can it help in overnight risk?
I have the same question. A great idea?
Always helpful and clear
Excellent analysis, too good.
Awesome Video #Saketh... Much awaited video... 👏👏💐💐😍😍
Thank you sir
What an insight Saketh 👏
we can hedge with 50 rs premium where ATM has 500 rs premiuim both the side.... thats affordable and also prevent loss from huge gap up or gap down....so you can have peaceful sleeping.....
thank you you have explained by excellent efforts, but need to consider margin and capital invested, for 1 lot hedging cost can be minimised at far Out of the money hedging. need to consider day volatility especially at expiry day.
But a hedge position needs a very less margin. If you sell a naked position then the upfront margin is high. Also if you choose long call wisely, you will save yourself from any unwanted moves in the market and you can trade in with a very less margin. Both work fine if you understand the risk.
And also. If one carries positional stuff, exit criteria with naked becomes important during the week and this backtesting would be interesting to see. I had gap up or gap down of 2 percent let’s assume. Should u exit according to what u mention in risk mgmt n re position another naked straddle at ATM at that point etc. would become important
Wonderful explanation brother but haven't added brokerage charges for buying positions
Hi saket, we can't understand what you are trying tell. In the first half you are telling hedging is not mandatory since severe gapdown or gapup happens once in a life time. That is ok you are correct. But in the second half to you are telling to keep 10L per lot since severe godown can happen unexpectedly.
Both the statement does not fit correct. How one can keep 10L in reserve to sell one lot. Please explain clearly.
You are a genius!
finally my main problem is solved because i am confused between hedge and without hedge
🙌🏼
Mine too
if you are taking intraday its ok but for positional hedge is must
So is there any other way to reduce margin ?
Can you please make a video on weekly straddle management 🙏🏻.
Thanks
That 3 lakhs rupees for buying one lot of pe and ce for a one year is absolutely wrong..
How will it happen? For buying 1 lot pe in zerodha cost of 65 rupees and ce is 65 total 130 rupees..for one year it will be around 7000 rupes only..🤔
I have taken the option prices from option chain itself, these are not assumptions
With 15 lot size in banknifty now, this video seems no more valid and hedging is beneficial or is there any better view now
U always unique compared to others, please do more , tq.
Superb video 👌
What a analysis 👏🏻