http://investingadventures.disqus.com/enTue, 15 Jul 2008 11:17:31 -0000http://investingadventures.com/2008/07/daily-update-july-7-2008.html#comment-1623634It means we still can make money in market going down?Jimy WongTue, 15 Jul 2008 11:17:31 -0000http://investingadventures.com/2008/07/daily-update-july-7-2008.html#comment-1623631Ling,<br><br>Any and all questions I can and try to answer are always free :)<br><br>Let's start off with delta. Delta is roughly the amount you'll make/lose with a contract for every $1 the underlying stock moves. Example:<br><br>Let's say my XL contract has a delta of -0.50 (negative .50). For every $1 XL moves down (in the same direction as delta), I gain $50. If XL moves up $1, I lose $50.<br><br>Delta negative means you're net short the market while delta positive means you're net positive. Over the past couple of weeks, I've been shorting everything I can in the market, so my portfolio has more negative deltas than positive deltas.<br><br>Now, what happens if the market rallies like it did yesterday? Well if you're short everything and the market moves higher, you're going to be hurt :) Some traders "hedge" or buy insurance on their positions. <br><br>Example: I'm currently delta negative by 1000, i.e. my portfolio has -1000 deltas. If I feel I need insurance, or a hedge, I can purchase something that follows the entire market, like the SPY or DIA. Let's say I purchase 500 positive deltas worth of the SPY or DIA. Now, my portfolio is net negative 500 deltas. If the market goes up, sure, I'll hurt. But I won't hurt as bad as if I didn't have insurance.<br><br>Hedging is a way that can help soften your losses should the need arise. Today I hedge myself a bit just in case we bounce tomorrow.JorgeWed, 09 Jul 2008 16:15:46 -0000http://investingadventures.com/2008/07/daily-update-july-7-2008.html#comment-1623633Not looking for a free lesson, but just out of curiosity, could you explain what 'heavily negative delta' and 'hedging against a bounce with some index calls' means. I was reading some of your back posts, and I figure if I hang around here long enuf I could learn something useful.LingWed, 09 Jul 2008 03:16:09 -0000http://investingadventures.com/2008/07/daily-update-july-7-2008.html#comment-1623632Nice day, and congrats on the success so far - keep it up!Tokyo TraderMon, 07 Jul 2008 19:51:55 -0000