Hello. I have a hypothetical for those with some decent stock market knowledge.
Let's say that I have $100,000 in SPY.
Then, one day, I want to hedge that position totally -- in other words, i want to achieve the effect of selling that SPY position without actually selling it. In other words, i want to use put options to effectively hedge all of that position.
my question is: approximately how many contracts would i have to buy (put options) to achieve this? additionally, approximately how much money would i have to spend to achieve this? i know that if my options expire worthless, i lose the cost of the puts.
The cboe web-site has a lot of information on options and you can easily find out prices for options on that site - i would do a lot more reading before considering using options to hedge a portfolio since you have to pick the right time to purchase, the strike price that you want, expiration date, etc and buying options in general and for insurance purposes can be expensive; do you expect the market to tank next week, next month, next year - the farther out the more expensive and it is difficult to get complete coverage without spending a lot of money since at the money options are so much more expensive than out of the money options - read up on it a lot more
Thanks for your reply. Yes, options are expensive. I really hate using options. I should probably just sell the underlying security rather than try to protect my gains in it by using options. Its just that I don't want to pay on the gains. Oh well, I'll take it day by day.