Stop cheering for your hedges to work

Your hedge has one job. Take enough sting off the move that you don't capitulate on the core position.

That's the whole point.

It's the "just in case" option. The long position is your base case. If you find yourself cheering for the hedge to pay off, you're missing the point.

This is where most retail trips up. They size the hedge expecting it to recover the full loss. They get attached to it. They want it to work. And when the market rallies, they panic and pull it because the hedge is bleeding.

The hedge is supposed to lose most of the time. That's the price of carrying insurance and improving risk adjusted returns.

Having said that, when a hedge does work, you should be restructuring it to bank some gains. That's how you manage the bleed of carrying protection over a full year.

Did exactly this on FCX last week. The stock dropped, my ITM puts paid me, I rolled them down to take chips off the table. Still holding the stock. The hedge did its job, and now it's funding the next stretch of insurance.

Knowing when to take a hedge off, when to roll it down, and when to leave it alone is one of the things that separates a real risk manager from someone running set-and-forget protection. 

That's what we work through inside the Ultimate Options Course. You learn the framework, then watch me roll real hedges live every day in the Alpha Pod. 

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