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LeeKing

5,871 Posts.

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18/05/17

17:12

Post #: 24776490
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Originally posted by Trae ↑

There must be some that did very well on the shortside of that move.

In the context of the hedge unwind strategy & GSL's, your exposure is limited to the delta between your long and short.

i.e. if your short is equal to your long you're 100% hedged so a 25% move would result in zero losses & zero gains
if you're long & 95% hedged your exposure is 5% of your long position
if you're short & 95% hedged your exposure is 5% of your short position

With this, ignoring GSL costs, if you're unwinding 10% of your initial position per rotation (leaving you with 5% exposure at any point in time), your risk is reduced by 95% under the hedge strategy over an un-hedged strategy or under non-GSL strategy in an event where regular stops are not or cannot be triggered.

If you wanted to be 100% risk off in a 10% per rotation hedge unwind strategy you could open 2 covers
1. a long sized to match your exposure at each rotation with an extreme limit GSL &
2. a short sized to match your exposure at each rotation with an extreme limit GSL
(each cover position size in the example would be 5% of total + GSL exposure)

That way under a 25% shock move to the downside, the long cover would be stopped out and the short cover would create a profit that netts your core positions losses (assuming you core is nett long at the time. If it's nett short you would do well).

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Yes, a 25% fall on a leveraged position would be incredible. But you'd have to have eyes on the screen, and it might be hard to exit with huge winnings if they suspend trading.

As for your strategy, I'll have to take your word for it - to complicated for me.
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