**Option is a small big strategy, do the wrong loss risk is limited, once done in the right direction, the return is calculated in several times or even dozens of times, options can be put ** hedging risk, coupled with the effect of leverage, hedging risk can achieve obvious results.
The principle of option hedging is also very simple, when there is a systemic risk in the market, the underlying is large, the put contract premium soars, and the profit of the option position is used to make up for the loss of the position to achieve the hedging effect.
Option sauce collated and released
Here are the steps on how to build a hedging strategy with options:
Step 1: Determine the market value of the hedge
Investors first need to confirm the correlation between the ** in the portfolio and the market index. This can be determined by comparing historical data from *** and market indices. For example, if the correlation between ** and the market index is 80%, then the investor holds 1 million**, and the hedged market value is 1 million divided by 80%, which is 1.25 million. This means that investors need to buy 1.25 million market index options to hedge their risk.
Step 2: Determine the number of contracts
Based on the market value of the hedge and the unit of the option contract, the investor can calculate the number of option contracts that need to be purchased. For example, if the contract size of a market index option is 10,000 shares, and the opening market index** is 3115 yuan, then the underlying market value of an option contract is 3115 times 10,000, that is, 31,150 yuan. Based on the market capitalization of the hedge, the investor can calculate the number of options contracts that need to be purchased.
Step 3: Determine the strike price
Investors need to set a threshold, which is the drawdown tolerance of the portfolio. When the loss of the portfolio reaches a set threshold, the hedging strategy will be initiated. This can be achieved by setting a specific percentage, or equity.
Step 4: Select a term
Investors need to choose the right maturity to execute the hedging strategy. It depends on the time frame of the hedge. If you only need to hedge for a specific period of time, you can choose the corresponding period; If long-term hedging is required, a longer term contract can be chosen. It is important to note that it is not advisable to choose contracts that are too long-term, as the hedging effect may be weakened.
Options hedging strategies are often used to deal with unexpected market** risks. However, if the market logic changes radically, or even enters a bear market, it is more appropriate to consider directly reducing or liquidating ** positions.
An option is a consumable, and buying a put option is essentially an act of insurance. Although the option may not allow investors to make more profits during the market, it may even lead to losses when the market is in the market. However, its significance lies in the fact that in the event of a "dangerous situation" in the market, the efficient "claim" function of options can effectively protect investors' wealth from catastrophic losses. Every dollar recovered in a disaster can have a tenfold effect in the aftermath of a disaster.
Therefore, the value of options hedging strategies is that they provide a flexible means of protection, so that investors can better cope with market volatility and uncertainty, and ensure the safety and steady growth of assets. Options