Options Hedging Strategy for Delta Hedging Credit Spreads

Options Hedging Strategy for Delta Hedging Credit Spreads

Video Summary:
This video showed an options hedging strategy buying SPX and SPY put credit spreads meant to hedge your options portfolio from a market crash. Sometimes referred to as delta hedging or crisis alpha, this strategy is meant to be a low cost way to protect your long trades during market corrections to minimize large drawdowns.

Use this link to learn more about eDeltaPro which is the software used for backtesting in this video.

Thanks for watching.

Eric

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[prawitopaulyong]

Thanks for sharing this great idea. Can you share the link to the video "SPX/SPY 60DTE Conservative Strategy" where this video is meant to be coupled with? How frequent do you sell the SPX/SPY put, and at what delta and spread? I can't find it in the video description. Another question: it's been 4 years since you posted this video. Do you think this strategy is still valid? I think it is, but in one of your responses to a comment about 8 months ago, you mentioned "I changed the duration of my credit spreads in 2022 so no longer needed the hedge." That's why I ask.

[whatatwist]

Any reason for the 20 point spread for spx? If trying to hedge more would you increase number of contracts or go wider, and why?

[ShihabPersonalFinance]

Valuable information, can actually lead to financial freedom

[joekarnsenko]

Great strategy here, but I'm a bit confused because on the graph, though your current (purple) line is flat, there'd still be a big cliff/hole as time goes on. So how are you protected against falling off that eventual cliff if you end up having to hold the hedge for a while allowing that hole to form?

[btd]

I'm a newbie, thx for a great video. What are the reason(s) for buying put credit spread to hedge instead of just buying a naked put?

[stevemeyer]

Hi Eric - is this still valid from 4 years ago? just heard it on an older podcast

[MrAndreingistov]

Great explanation of a simple delta hedge. I’m going to pepper in one of these every time SPY crosses the 10 day ma. I have mostly put credit spread positions and while the long put is a hedge, I find them harder to defend than naked puts because they are harder to roll forward. As of now my only defense against a sudden bear like March 2020 is I keep 50% cash available, the long puts, and some call credit spreads that I have as part of a few iron condors. Do you ever add call credit spreads to create an iron butterfly when defending a put credit spread that tanks?

[okeuwechue]

Using EMAs and SMAs to track fast moving(fast falling) stocks is pretty useless IMO. Moving averages are *lagging* indicators so by the time any crossover appears, the dangerous action has already happened long ago.
Have you considered instead using a strategy utilizing RSI or Stochastics ?

[brians]

What if it never hits the 300%/400% profit exit point? Do you use trailing stop loss? or

[dwayneseegars]

How would you use this hedge if your credit spread is 60 to 90 DTE? Thanks

[hughess]

best explanation I've seen on this, thank you.

[davidzhang]

Great Video, thank you for sharing. What I don't understand is why you need this hedging to "protect" any major market crash when using your Put Credit Spread strategy. It seems the Put Credit Spread Strategy sells a put option 60 DTE, let's just assume for illustration purpose the Put selling will NET you $5. The Put Credit Spread then buys the same 60 DTE option 4 Strike price below. Let's say it cost $2. So this Put Credit Spread NET you $5 -$2 = $3 dollars. Wouldn't the fact that buying the lower Strike price PUT option already protect you from the market crashing? Wouldn't your maximum risk calculated this way?


$4 ( the spread difference) - $3 Net proceed = $1, my question is that since this $1 value has a cap, why do you recommend protecting this strategy using a hedge??

[bjpurdy]

Hi Eric... trying to understand neutralizing delta here with this hedge. So, if I have a portfolio of several put credit spreads whose total delta is 5, and I want to hedge with this method, how many put debit spread contracts would I buy if the near strike is delta 5 and the far strike is delta 4.7? Is it just one, or is it 16 (because 5-4.7=.3 and .3*16=~5)?? Or some other number? Great vids btw; love the simplicity and high probability of the credit spread strategy.

[nayanpandit]

Can one use this strategy for global protection of you portfolio? How would you use to protect $100K protfolio invested in various stocks or ETFs? or any other suggestions?

[blink]

how about selling a 45 DTE credit spread and exiting at 25% profit

[andreaskunst]

Dear Eric, thanks a lot for this nice analysis. Did you also include commissions in your results? I believe the eDeltaPro platform is capable of doing this, right?

[ShihabPersonalFinance]

So if.you have 10 contract put credit spreads, would you do 10 debit.spreads for hedging or.just one

[carstensippel]

nice but how will you save a 100K Account ? So i need a lot of contracts here

[jeffjewell]

Eric, how much do you hedge your portfolio as a percentage? I've been buying VIX Calls or SPY Puts as a total portfolio Hedge for about 0.25% of the portfolio, but that almost seems too small. Curious what percentage of your portfolio's total capital or the percentage of your funds invested that you would use for this hedge. Great video!

[CBCWang]

Holy shit this guy called the COVID-19 pandemic