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The Trade Busters
25 - The Why, the When, and the How of Hedging
Aug 23, 2021
The podcast delves into the fundamentals and strategies of hedging in trading, discussing reasons, methods, and timing. It covers the importance of simplicity in hedging strategies, the challenges of predicting market movements, and various methods like VIX call ladder and long put options.
11:57
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Quick takeaways
- Understanding the purpose of a hedge is crucial before implementation, assessing what needs hedging and proper sizing.
- Timing in hedging varies, perpetual hedging for continuous protection and just-in-time hedging for reacting to market changes.
Deep dives
Key Considerations for Hedging
Before implementing a hedge, it is crucial to assess the reasons behind it. Understanding what needs to be hedged, whether it is a long equity position or part of another strategy, is essential. Sizing plays a significant role in hedging, as proper sizing can act as the most effective hedge. One should evaluate if they are trading at a size that makes them uncomfortable with potential losses, in which case adjusting the trade size is advisable.
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