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I've been away from Futures for several years and I'd appreciate some
input to make sure my thoughts about a hedging strategy using the emini
is (conceptually) correct. Given that I have a portfolio of (deep) 3
month stock PUTs I'd like to hedge them using the emini as its seems
more efficient than using index options, at least on the surface.
My thoughts are to construct a ratio that considers the relativity of
the volatility of a portfolio of (virtual) stocks, the volatility of the
emini, the value of the portfolio, and the notional value of the emini.
My understanding is that the notional value of the emini is the last
price times $50. For example, 910x50=45,500.
Given the above I think a ratio would be
(StdDev(emini)/StdDev(portfolio)) x
(Portfolio(close)/emini-notional(close)). The answer is intended to be
the number of emini contracts one would buy at the opening of the hedge
so that the risk at that moment is theoretically neutral. Of course
stock lot sizes (let alone the use of stock options) and Futures
contract sizes won't allow that to be so.
Ok, fire away!
Thanks in advance
Colin West
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