Hi everyone,
Does anyone know where I can understand the math and ways to optimize my portfolio ? Specifically I'm looking for different ways and strategies to hedge high beta tech names for no cost.
I know that in this current strategy i could end up doubling my exposure, but at 20%+ otm and $120 per share hedge I'm getting on my existing shares reduce my cost basis closer to 30% on 200 shares if the underlying goes into a severe drawdown.
I have a 7 figure account, and I'm a former software engineer but I decided to move from a total focus on growth towards capital preservation with growth.
I have gone through a variety of trading strategies, and so far the best way to hedge that I have stumbled upon is a broken wing butterfly combined with a short put.
For example on the OCT 16 monthly MU options chain I made the following trades :
1 Long 980 strike - 145
2 Short 860 strike - 78 x 2
1 Long 780 strike - 45
1 Short 720 strike - 33
Entered into as a net credit of $1.
MU went to 920 in after hours, even with that the long put is still $60 in the money.
My plan is to roll the entire structure upwards every time MU increases by 5 or 10% so I am rolling my synthetic floor upwards, I might have to adjust the skews slightly depending. Will only ever roll as a net credit.
Am going to defend the short puts by rolling down and out if threatened, probably if/when MU breaches 890.
I have all kinds of names from MU, Lam, amat, stx, amd, etc. Since I deployed 1/3 of my account into long equities, 1/3 into cash secured puts, and 1/3 in cash, I have the balance sheet to defend any market situation.
I purposefully traded these years by exposing myself to high beta to a smaller amount of my portfolio and I don't plan on changing that.
I've been through a variety of structures the past year, started with covered calls to reduce cost basis, then a protective collar for a net credit, followed by a calendar spread by doing essentially a bear put spread at the 2 month and selling the 2 week covered call for a net debit.
I liked the added protection it gave, but across all my underlyings even though it prevented 1 significant drawdown the other 4 were worthless and I would have been better off not hedging.
Please if you could advise any resources to read further I would appreciate it.
I think of this as weaponizing the volatility surface and taking advantage of the volatility smile / skew.
I plan on replicating this on the NASDAQ QQQ for additional macro protection given the skews actually make it much more favorable to hedge the overall macro risk at virtually cost free based on how convexity should impact my 2 long puts harder than my 3 short puts. I don't own anything in the index, just using it as a cheap macro hedge vehicle.
I didn't even know what this was called until I came up with the structure to deploy it. This was purely accidental, I had heard the term broken wing butterfly but never understood it. AI tells me my structure is a variation of the BWB with a naked put.
Thank you very much, I appreciate your time.