Reply to thread

Snake

As to being worth it, that is really an individual choice that should be governed by your risk exposure calculation.

Total Risk = Controlled risk - Uncontrolled risk

With the reward component following a similar balancing calculation.

Viz. a fully controlled reward will fall at the lower band, with highly speculative reward falling in the upper bands.

An alternative hedging strategy is the Pairs trade

Here we take two common stocks exposed to the same business (an example) could be Coca-Cola & Pepsi Cola.

If (and lets assume this is the case) one is over valued, and one under valued, then we sell the over valued short, and buy the under valued long.

You are (sort of) market neutral.

Another strategy is the Fair value hedge

Here we use the futures market trading price against the cash market to establish *fair value* (there will be either a premium, or discount)

Lets assume a discount, on the opening we assume a return to fair value, so sell the cash market, buy the futures...........you can work the same trade using common stocks that you follow, assuming you believe that you know how they trade.

jog on

d998