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Non-Tech : Paired Trades and Hedging Strategies -- Ignore unavailable to you. Want to Upgrade?

To: Sam Citron who wrote (55)	12/18/2004 11:49:20 AM
From: tyc:>	Read Replies (1) \| Respond to of 136

You are a man "after my own heart "!. And this is a thread about hedging so what the hell, I might as well expand. Consider this strategy, ( I acknowledge, nothing is new). 1.Warrants are options, and like all options they have a "delta". 2. Say, the warrant delta is 30%; that simply says that the warrant value will move up the same as 30% of the dollar value of a share of common. This I term the warrant's "delta-value". 3. The delta value indicates the $ amount of common that can be shorted to provide a perfect hedge for each warrant held. 4 Such a hedge will "make money" both up and down (at the cost of "theta" which is negligible for a long term warrant). If one wishes to restrict an asset class to a specific percentage of PF value (as I do), what better way than to use the delta-value of warrants; short selling common when the percentage is exceeded and repurchasing to restore the balance on a drop ? The old "buy-low, sell high". In the remote possibility that this sounds interesting, I could point out some delicious prospects !