Beta weighting stock option trading
Most did not and many others were late in taking action until most of the damage had been done. Unfortunately, they do not realize that they wasted many years waiting to get back to break even, years where they could have been earning and compounding those gains.
It is up to you to decide how and when you will retire. If you do not know how to prepare, then become educated. The process is not difficult, it just takes an open mind, the willingness to learn, and a successful mentor and support system.
Most people plan for their retirement by contributing to a k or other company sponsored plan. There are several drawbacks to these plans. The high fees can create drag which reduces the amount of money you make. There are limited choices in these plans, usually several mutual funds. And you cannot profit when the markets move sideways or down.
These methods can get you much higher returns than your simple company sponsored plan alone. If you do have retirement investments, you need to protect them when the markets drop. It would be easy enough to sell them but many stocks pay dividends that the investors do not want to relinquish even during a crash.
Another reason for holding on to a stock position is to avoid tax ramifications on profitable sales of securities. The value of the put will increase as the price of the underlying stock decreases thus covering the losses in the stock position. This is easy but also very expensive as you will have to pay a premium for every put you buy for every stock that you insure. Fortunately, there is a less expensive way to protect a portfolio.
You can use the index futures markets as a hedge for your stock holdings. Selling a future is easy if you know how they work; and selling futures is also allowed in certain IRA accounts.
The ES is the equivalent of trading shares of the SPY but can be attained at a fraction of the margin cost. To hedge your portfolio properly, you need to determine the Beta Weighting of it.
This is why I get so fired up when I see trader's trading with out understanding the concept of weighting that I am about to run through this is something my option mentoring students would never engage in.
Needless to say this was a complex process. In order to really make these trades work properly we had to 'weight' the delta and the gamma. Meanwhile, with vega and theta we had to do very little when combining the greeks of several products there was a lot of other things to manage with vega, but practically nothing for theta.
Why would we need to do a bunch of work for delta and gamma and practically nothing for vega and theta? The answer lies in the definition of a delta. The 1 point move is the important word in that statement. A one point move can mean different things to different underlying products. If Ford rallies one dollar, would a trader notice that? Yes, of course the trader would. Why does this matter? Because most traders are taught to think in percentages and most strategies are designed that way.