Trying to Understand Hedging with Spreads figuring total Risk

#1

I did not take this trade just found this setup for a hedge.
This would be for Spreads only, I am not trading live futures yet.

  1. Is this is a good setup for a hedge if the market was going up?
  2. Are my numbers correct?

All comments welcome, thanks

#2

Your sell side costs $27 to get in. Add that to the initial $10 to get in on the buy side… So its around $37 (not including fees) that the market would have to move up in order to break even.

If the market tanks all the way to the floor of the spread 1470.00… your buy side would end up losing $313 while the sell side would make $273. So you would end up losing $40 not including fees

Of course I could be wrong… but I would look at as a $37 risk for the market going up… and a $40 risk if the market tanks all the way to the floor of the spread

#3

Thanks, MATRIXBINARY373. Can you explain how the buy side would cost $37. I don’t understand where the $10 come from to add to $27 from the sell side.

Darrell had put on a webinar last week 10/12/17 on Hedging. I was trying to use the info he gave but there was a lot of info for me to grasp. I will go thru the webinar a few times and take notes. The calculations I used to get the risk I think is what Darrell talked about. My goal here is to learn how to pick a good hedge, which part of that is having a low risk.

#4

Your Risk would be the $40 (1501.3-1497.3). On the Buy side you would Profit $287 from where you bought in the spread from the ceiling. (1530.0- 1501.3= 28.7/$287). On the Sell side all you could Lose was the $27, that was your Hedge. So subtract $287-$27=$260. That is the most you could make. So you would be Risking $40 to make $260 if your trade went All the way up to 1530. I hope this Helps. I myself am trying to get this Hedge trading down too.

#5

Thank You, VINCENTDURRY75, This does help it looks like I was making it to complicated.