Strategies

Choosing and sizing hedges, speculative directional and spread trades, option overlays (covered calls, straddles, calendars, delta hedges), and arbitrage when listed prices drift from fair value.

1. 6.2–6.4

   Futures P&L, hedges, arb

   • Bond-futures hedge ratio ≈ (P × D_p) / (F × D_f). Long bonds, rates up → short futures.
   • Index hedge: N = (β × portfolio) / (index × multiplier).
   • Hedge the expected quantity; do not over-hedge a 5% volume band unless instructed.
   • A fully covered commodity hedge still leaves basis risk.
   • Calendar spread widening (deferred richer): buy deferred, sell near.
   • Contango expected to narrow: long near, short far.

2. 6.6–6.9

   Option strategies

   • Expect a big move, IV cheap → buy an ATM straddle.
   • Covered call ~5% OTM: harvest premium, keep the first 5% of upside.
   • Delta-neutral a long stock: short calls = shares / (delta × 100).
   • Short-call delta hedge: as the stock rises, call delta becomes more negative → buy more stock.
   • Long calendar (short near, long far): long vega — a vol pop helps the back month more.
   • Partial fill on a multi-leg spread leaves directional exposure — discuss that first.