Black Swan Hedge Option Trade & Google Sheets BSH Tracker Summary
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- čas přidán 2. 08. 2024
- 🔍 Dive deep into the world of Black Swan Hedge option trading with our latest CZcams video! 📈 Join us as we unravel the intricacies of this advanced options strategy and unveil a cutting-edge Black Swan Hedge Tracker meticulously crafted for Google Sheets.
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🚀 Elevate your trading game by understanding the Black Swan Hedge strategy, designed to protect your portfolio from unforeseen market shocks. In this video, we break down the key components of the Black Swan Hedge, exploring entry and exit points, risk management, and optimal scenarios for implementation.
🦢 But that's not all! To empower traders further, we introduce a game-changing Black Swan Hedge Tracker available for purchase on www.drawbridgefinance.ca. This dynamic tool seamlessly integrates with Google Sheets, offering a user-friendly interface to track and analyze your Black Swan Hedge positions. Take control of your options trading like never before! The Black Swan Hedge Tracker is available individually or as part of the comprehensive Rolling Options Record Keeper.
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▬ CONTENTS ▬▬▬▬▬▬▬▬▬▬
0:00 Introducing the Black Swan Hedge Tracker
2:08 Black Swan Hedge Overview
3:15 Step by Step Entry Guidelines
3:32 Step 1: Selling the puts in Interactive Brokers TWS
4:40 The Initial Risk
5:43 Step 2: Buying the 5x long puts
7:14 BSH Tracker Intro
8:20 Overall Risk Summary
10:04 Row Entry Overview
13:25 My happy Mistake!!
14:49 Overall Position Summary
15:18 all in or annually, your choice
16:20 Entry Example and reading the Discord Alert
19:12 My Modification to this trade
23:47 Download the sheet
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Great video, out of the park! Very encompassing and informative, thanks so much for sharing 👍🏻
Thank you for putting the time and effort to make this very informative video.
Glad it was helpful!
Way better explaination than that Sweet Bobby guy…he’s always getting sidetracked with rants and yelling at his kids/dog, LOL.
Thanks:)
Agreed - I gave up watching bob along time ago…. It’s actually painful to sit through. He uses poor audio, not to mention all the redneck heehaaw crap.
That's true. 😅😂
Sweet Bobby actually makes money. He is transparent, and generous with his advice. The little distractions make his channel lively… I love the Southern drawl too 😂
@@bharatchitnavis9592 - But that makes his vids 50% longer than they need to be.
Spreadsheet looks excellent and I don't think I need it, I can probably whip up something on my own... but I bought it anyway because you deserve to be paid. Great content, simple breakdown. I have a decent sized portfolio that I've been trying to figure out how to effectively hedge and this helps a lot. Thank you sir.
Appreciate that! Thanks so much for watching, commenting and purchasing!
Just bought your BSH sheet. You definitely earned that $20! The sheet is so nice, it looks so professional and trim. Thank you for taking the time to put it together! I recently started trading 1122's and needed a solid way to hedge away my downside risk. Definitely going to have some pucker factor doing the initial phase 1 part of my first trade. I'll be happy once my first purchase of the 5 puts fills. I'm ready to have a massive put wall on my account like you 👍
Thanks for your kind words! Glad you’re enjoying the sheet. As for that first tranche: It’s pretty cheap to just buy a couple of 30 DTE long puts to offset the massive initial risk. OR on the first go I buy back the long puts 100 points lower rather than only 50 points so that I can get out of that trade risk sooner. Both make the first tranche have some cost but easy peace of mind.
@DrawbridgeFinance thank you very much for your suggestion I'll take a look.
@DrawbridgeFinance yeah I bought some same stike puts at 30DTE for $233. That's worth every penny just for the piece of mind until my first two tranches of puts fills.
Once I get these rolling I can collect some small extra credits over time to pay for it.
Thank you for your informative video on how to use the BSH sheet. I shared the video with my dad and cousin so they know how the BSH hedge works as well. Have a good one 👍 😊
this is why i read comments. Great piece of advice@@DrawbridgeFinance
Thanks Levi. Just some feedback. As a newer member I thought you explained the mechanics and guts of the trade quite well. What you didn't do which would have been helpful is explain the philosophy of the trade, how it works and why you are doing what you did. Thanks good work.
Thanks for that.
This trade is designed to offset losses if a massive selloff were to occur over a short period of time. Events like the Covid pandemic of 2020 are often accompanied by an expansion of volatility as the price of the indexes move down. A trade like this increases in price to offset losses incurred from holding long stock or long delta options positions.
Ron Bertino is awesome!
Thanks Levi - purchased the Rolling Rec Keeper (with the BSH) As a First timer - I wish there was a shorter - more to the point of placing a First BSH video. While this one has lots of content - I need to ignore most of it... to place the First BSH orders.
You are my NEW goto guy for options.
Noted! Thanks for that feedback.
@@DrawbridgeFinance I'm about 20 days into my First BSH... still in phase 1. Another suggestion...
A video or slide show that shows the BSH as it moves in time... day by day ( or a stop action video of the profit curve) and when the trades phases take action.
I'm a bit nervous about the Puts that are naked at this phase....
Love the video, Levi! If you see this, I have 1 question about initiating it from a clean start. The initial downside risk seems substantial. So, would you consider buying a few cheap longs (as if they were fully formed) in order to mitigate that risk? Just to protect against an unfortunate early black swan.
Buying 5x 30DTE long puts for 0.20 debit each virtually eliminates the initial risk as the trade is a hedge for the first 30 days.
Thank you for the explanation, one question is if you put on the short puts and wait for the long puts to hit your $1.60-1.55 price point is that not leading you to carry unneeded exposure/risk then if you put it on at one time and forgo the profit opportunity (for example if you put on the short puts the market starts grinding down the long puts will never hit your price point)
For that first tranche: Buying 5 shorter dated options for a debit will help cover that gap until the first hedge is converted can work very well. It does make the first hedge cost a bit of money.
How does this pay for itself? Your still left with the debit after closing the short put side.. So once the debit put expire you be down $300 or so per trench?
Hi there! Great content! Your subtle difference vs Sweet Bobby's version is that you are a little bit more greedy with buying the long puts?
Correct. I want to actually make money off every trade.
Thanks again for this informative video and your spreadsheet. I like how you optimized the system to even make money on it. I have a suggestion though. Why stop there? You are suggesting a linear return on this already amazing strategy.
Once you are fully rolling and have all of the hedge components started, including at least 1 fully formed hedge, you can either start to "strike/delta creep" your new additions or retain even more premium. So you can start to very slowly collect higher initial credits at marginally higher deltas each time. Only reason you can do this is because you are already heavily net long on your account.
So, you can either harvest additional ticks of profit or start slowly going up the chain closer to the money.
So you can slowly multiply either your small theta gain or slowly increase your delta so the hedge will activate sooner.
What do you think? I'm just theorizing at this point because my account isn't fully rolling like yours is yet.
This is a very good suggestion and something I may look into in the future. For now I’m scaling up by adding tranches. My hope is that I can just keep building more and more. There are so many different ways to scale this strategy. Keep in touch about your returns!
@DrawbridgeFinance yeah I thought about it after I posted. You do NOT have a linear strategy. You are right that it does already stack on its own and will scale slowly. I'm using it to cover the risk pocket of 1122’s.
Yes I will let you know. Is there a way for me to modify the prices in the code to do this for MNQ and CL for example? For now I'm just fudging the numbers until the debits and credits are correct for the money calculations.
Does this work as effectively on SPY / QQQ as compared to ES?
Awesome video! I purchased your spreadsheet and already place the first hedge. Do you have tips for hedging other instruments? For example, can I apply the same hedging strategy for Crude Oil?
This strategy in theory works on any underlying. I like it on futures because of the reduced margin requirements.
Thanks for the video Levy. What if after selling the 3 short puts, the market started going down? The 5 longs that you are planning to buy will go up in value, and you won't be able to buy them for an overall credit (for both transactions combined)
👍👍👍
Great vid! I'm looking in buying your spreadsheet for this. But what happens if you open the 3 naked puts to start, and then the market tanks right after that? Do you then buy the 5 longs and accept a loss on the spread?
There is risk opening the first trade. When I started, my first tranche, I bought back the 5 long puts at a slightly higher price so I was only naked for 6 days. An alternative would be to buy 5 shorter dated puts. I didn’t like taking that initial risk and I think if I was starting again I would let the first trade be a small net debit and then make back that loss on subsequent trades.
@@DrawbridgeFinance makes sense, thanks for the response!
Very good run down of the hedge.
What happens if you initiate your first set of sell to open puts and the market keeps relentlessly going down? Do you just hang on and hope they don’t get breached or do you have a way to stop the pain?
For that first tranche: Buying 5 shorter dated options for a debit will help cover that gap until the first hedge is converted can work very well.
Hi, I follow you from Italy, congratulations for your really interesting content, I would like to ask you a question, I didn't understand when you decide to move from one tranche to 2 or 3, what makes you decide to continue using 1 tranche or more tranches?
Thanks if you want to answer me.
It’s portfolio size dependent. Ideally I want as many hedges in play as possible as they build on one another. In a 400k account I keep about 50 net long puts.
Nice i like that.
Glad you like it
@@DrawbridgeFinance Is there any reason if i was only using 5% of my BP right now I couldn't use this same strategy at 10% drop level? ( meaning if the /es was at 5000 start the hedge 4500)
How much extra time might it take to allow the -3 short side to decay enough to just buy them back, plus 2 more for a scratch? I hate that 50-pt well of death between the +5 and -3 strikes.
It would only take a couple of days longer and could be a simpler way to play it. That well isn’t a factor in these trades for 2 reasons:
1: Because the trade is so far away from at the at the money that the any selloff to that level would also come with increased volatility levels. The volatility expansion would make these trades profitable.
2: the shorts are closed at 21 DTE. So there is no valley of death in the final 3 weeks.
Hi Levi, thanks for offering that amazing BSH google sheet. I purchased it and can see how it is going to guide me putting in the proper hedges. Question though, I believe that to start of the BSH we are to look for a 60 DTE put that is purchased for around 3.00. This seems so far OTM though. With /ESM4 currently trading around 4955 the $3 puts are around 3700. That's around 25% away. Shouldn't the BSH be closer - say 15 to 20%?
I enter BSH 90-120 DTE so they are about 40% away from the current price. This hedge is for end of the world type events. I run long strategies like 4-4-1 and 1-1-2 trades that build a nice profit tent for the 10-20% drawdowns that occur every couple of years.
@@DrawbridgeFinance oh, that makes sense. I think you stated that we should put on 1 BSH tranche per $50K of Net Liq. Is that correct?
Hi Levi, I bought your excel sheet for the good explanation. Great work. When the Black swan event comes, how do you plan on unfolding all the hedges ? All at once or by tranches ? When I do the maths, something worries me : on one hand, we have "complete harvested" hedges that are near to expiration and on the other hand, we have the newly placed BSH that are the short puts running for 2 / 3 weeks that didn't trigger their long part yet... and that won't be able to trigger those long puts as Implied volatility will have sky rocketted. Unfolding them by tranches might be tricky as expiration will play against us. Selling all the hedges at once seems less risky. Can you give me your idea on this or make a video regarding the unfolding of such a complex hedge, please (messing up with the exit could be a real drama...) ? Thanks Levi.
I confirm. Dealing badly with exit can be very, very ugly. When you start having 7 or 8 tranches, you have 24 shorts / 40 longs coming every week (if you place it consistently, every week). Assume that for each tranch, you are naked short for 7 to 25 days until the longs are tiggered, depending on the market conditions of your enter. Plus, at the end of each week, you have a bunch of long puts that expire, too. When the black swan comes, you might have 2 to 3 tranches that are still naked as the longs are not triggered yet... and won't be ! Time starts playing against you. If you don't sell quickly your WHOLE positions (within the 1rst week of the black swan), you start loosing your long puts that expire and the following week you start being net short with a LOT of fresh shorts and fewer old longs that hardly play their hedge role... I whish this could have been the magic hedge but I'm not sure anymore... I will play it with one tranche only until the next black swan to test and see if I'm correct.
Thanks for posting the Black Swan Hedge. The market would have to fall quite a bit in order for the hedge to combat the losses in the trader’s positions The positions would be in loss before the ES gains in value ? And also are you able to hedge against say 90 % of a loss of the majority of your positions ? For a small time trader does the same work in a particular underlying? For example a trader has spread trades on AAPL can the trader hedge by doing the further out of the money hedge as is done in the ES but doing it on AAPL ?
Once the trade has moved into the second stage (3x short, 5x long) it’s virtually impossible to become a loss. If ES drops the 5x long puts will gain value faster than the 3x will lose. I demonstrate the profit loss chart about half way through the video. The only loss that could occur would be if there was a very slow drawdown. At 21 DTE I would close the shorts and this could cost slightly more that $-0.20 this could cause the trade to lock in a small loss.
Past 4 biggest draw downs in past 10 years have averaged 23% drop in SPY. Trying to hedge a 90% draw down is just not going to be realistic.
@@charlesolinger9735agreed. This is why I have converted this to a very high probability income trade rather just a hedge. I also run this simultaneously with trades that make max returns around the 20% drawdown level.
@@DrawbridgeFinance Do you mind telling us how you hedge a Mar-2020 type crash? The only flash crash hedges that I know are buying some 2-5 delta ES puts every 10-30 days (can be very costly) OR buying some ES put back ratio spread (free but the "Death Valley" is worrying...
Hey based on your account size how many tranches should be placed?
1 tranche makes about $50k if it ever triggered. So 1 tranche would hedge against losses per $100k
what would you do if the naked put keep going up after you opened them..
Once you have a few in play, the previous hedges protect the new ones.
Hey! is it possible to modify the BSH spreadsheet for other indexes, say a MICRO contract?
You have the ability to modify any of my spreadsheets to suit your needs once you’ve purchased it. It does require a bit of spreadsheet knowledge but often the changes are pretty simple. Changing this one from ES to MES is as simple as changing the multiplier in the formulas. 50 would be reduced to 5 and voila.
@@DrawbridgeFinance Got it thank you.
I'm asking if the latest trade can be at the top rather than at the bottom?
It could be entered in any row. If you wanted to sort the rows by date. I would recommend modifying the sheet into 2 tabs. One for the row by row entry and one for the summary information. My sheets are easy to customize as they are not locked.
hi correct me if im wrong. but if the market keeps dropping you wouldn't get filled on your 5 long puts right? and the short 3 naked puts will be having substantial losses
This strategy requires being net long. There are always more long puts than shorts in my portfolio.
Great video. What’s the reason to use /ES vs SPX?
ES uses smaller margin requirements. Small enough that the hedge makes sense without tying up too much capital.
@@DrawbridgeFinance do you think this kind of hedge can also be placed using /NQ? I primarily trade /NQ, and wasn't sure if an equivalent set of parameters can be crafted? I would assume so, but was curious about your thoughts.
I've seen a few videos on BSH now and the only thing no one talks about is what if the short puts never make it to .20 debit but the market drops 10 - 20%, what do you do with your shorts then? closed and let the long puts run?
I did cover this near the end of the video so you might have missed it. At 21 days to expiration, I buy the short puts regardless of price. This can result in a small debit for the trade overall. My sheet also has a reminder built in to harvest the puts if they are held that long.
if you had 5 long puts in place and only 3 short, then a 10 to 20% drop would have made you a killing. I think. So, I think you would just close the trade for a huge profit and set up a new one, and those new 1 delta puts at that time would be selling at like another 30% drop level. It would be awesome.
how do you determine how many hedges is enough for your portfolio?
Look at the p/l curve.
Dont quite understand all the details but that main worry of "surviving the initial short 3 puts" eventually disappears once you get a few full hedges on....correct? After that, you dont have to worry about the new 3 naked puts? Once you have this campaign going, those initial 3 naked puts will be hedged by the already existing full hedges?
Correct. The hedges overlap once the campaign is underway. To offset the risk of the first three puts, some traders buy 5 long puts for $0.20 (x5) with 30DTE. The cost of $50 eliminates most of the short put risk. The short puts are typically converted in 9-30 days at which point the hedge is in play.
Another question, you mention you start this process each week, doesn't that mean you could have open many tranches of short puts before the long puts are purchased? Or do you wait for a tranche of the long puts to be purchased before shorting 3 more puts?
I add weekly and have many overlapping trades.
@@DrawbridgeFinance I am afraid that if I add weekly I will have a ton of naked short puts and very few long puts in place
@@redeyes5568it’s very important to size for the account. My account size can handle weekly entry. Smaller account would require smaller sizing. I play within a size that isn’t scary.
Wouldn't you need a huge amount of capital to open those 3 short puts? How large a portfolio do you need to do this? Thanks!
And can this be done on SPX or SPY instead of ES?
/ES uses span margin so it’s less than other underlyings. In a black swan event 50% drawdown a -3p +5p would make about 45k- 50k. This one tranche would be enough to protect a $100k account. I combine these with other hedges that make money in a 20% drawdown which are more common. Even in 2008 this would have not likely to have made much as the 40% drawdown took almost a year.
It could be but It’s not capital efficient
These positions can be opened as spreads to limit the initial risk, right?
Yes. Or as diagonals. I went over this in today’s livestream.
What would have happened if those 3 short puts were at the beginning of February 2020?
Would have been a world of pain. Did you trade through the Covid crash? I was excited about that draw down at the time but was very light short puts because of the low IV at that time.
What I learned is that there was plenty of warning signs about the covid 19 virus well before late Feb that would have made me very nervous and potentially get out of the market and or buy protection. This is of course 20/20 hindsight. But the same can be said when Feds started raising interest rates, and when Russia started to mobile on the Ukraine border and what's the risks we see today? Interest rates will start to fall...bullish...record profits due to previous years inflation...bullish Middle east turmoil...bullish on oil......Russia using small nuclear warhead in Ukraine....bearish......Recession causing lower rates....Neutral
i just purchased the BSH spreadsheet . I am disappointed there are no written instructions to guide me through the setup process. I listened to the youtube video twice but still had some questions on setting up the hedge. I left the questions in the comment section but they don't show up when I revisit the site.
Mark
Would love to help. The specifics of the trade setup are on the far right of the spreadsheet
Black Swan Hedge Management: (Cells AA2:AC14 )
If you have further questions please email me directly at drawbridgefinance.ca@gmail.com
@@DrawbridgeFinance Thank you. I sent you an email this morning.
Trying to understand the math and the steps. So first you sell 3 contracts Sell $3 PUTS. Now you enter a GTC order to close these at $0.20. This would be mean if all goes well you will get a net credit of $2.80 from these 3 PUTS. So you spend all of this $2.80 to enter GTC Buy order of PUTS 50 points away? The idea is at some point in time you will close the 3 Short put at 0.20 and keep the 5 long put open as a BSH and you would have practically done this for free? Did I get this right?
That’s right.
Actually once you have bought the 5 puts at the correct price, Approx. once the credit received from selling the 3 puts is enough to buy 5 puts 50 points lower, you will have the BSH in place. You don't need to have sold the short puts to have the hedge become effective, you just need the 5 long puts in place. Also, I just realized, as I'm typing this, that if you allocated some money, say .5% per month to buy this hedge, you could buy the long puts sooner than at break even.
Tried this weekly recently, and it took about 15 to 21 days to fill the 5 x $1.5 put orders. Is that what it took on your end as well? During these 20 days, we will be carrying 3 of the 3x naked puts, which seems kinda scary. 😨
That is the typical range. The longest one this year was 33 days for me. Once the campaign is going the hedges overlap one another and previous trades protect the new trades.
If I wanted short term protection, I could just buy 5x 30DTE puts at the same strike as the shorts. This would I make the initial trade have a cost. But it would be hedged from day 1.
@DrawbridgeFinance how is your profolio doing.. I did this weekly, and now I have 5 sets of 3x naked puts ... if the market continues to drop, these will get scary very soon.. are you setting any rules on when to stop doing these?
Have any been converted to longs? On the right side of my sheet the there is a tally of net long positions. Because I’m always net long, the recent VIX spike helped all of my swan trades show profits. Unfortunately/fortunately the selloff has not been big enough to really increase the values of any BSH significantly . Also none of my 1-1-1 trades have triggered their exit parameters so my portfolio is performing as expected. How is yours doing?
Check out 8:40 in my video.
Couldn't you just buy a .06 delta vertical PUT spread out of the money for a net debit super cheap out about 90 to 120 days out?
There are many wars to hedge.
You eventually need more long puts than short puts to get an effective hedge. When they are 1 for 1, you will not get the payout you need. I verified this with a 10% drop, 20% increase in vol on tasty trade. So the risk you take waiting for the counter balancing 5 puts to fall in price enough to get the lower buy price is the risk you take and if you survive this risk the reward is an effective hedge. So no free lunch until you get those long put in place.
@@loubob21 10% drop isnt black swan. 20% or more is a black swan and what these long puts are meant to protect. Past 4 biggest sell offs past 10 years averaged out to be 23% draw down.
@@charlesolinger9735 Yes, but I guess I'm referring to any fast drop that would wipe out my account. A single day 10% drop might wipe out most.
I went to download the spreadsheet and ended up with a DIY pattern for a flamed knuckle duster LOL
I’ll have to get you into leather working :)
Way to complicated. Can u make a button for us that says "Hedge" and we put in amount and it does this for us
This is too risky for people who are looking for risk mitigation to set up. Initially exposed to 3x 0.5 delta more of the portfolio ? a big nono
There is plenty of initial risk, buying short dated long puts is an easy way to mitigate this risk.
I thought he said .05 I must have missed something?
In order for long contracts to get filled ES has to trade higher to buy at $1.55 to 1. 60 what if ES keep going down then you have 3 naked put. How much buying power you need to have 3 or 6 or 9 naked contract? How do you manage the 90 to 120 BSH if long contract doesn't get filled?