Does anyone use CFDs as their main method of entering a trade then hedging with protective puts or protective calls? It's something I am crunching the numbers on right now. I am looking at using ASX CFDs*. It looks like you profit if the stock goes far up or far down, and you lose money if it gets stuck within a trading range. It would suit swing traders imo. You still set your stop loss on your CFD but if the stock keeps going the opposite direction to your trade, you could actually end up profiting from your option. You are also protected from overnight gaps. You will lose money from gaps/trading ranges but the risk is manageable. From what I can tell, you can still escape with some of your margin.
I would like to know if anyone is doing this. I am not sure if I have calculated all the risks properly or am correct in general in the effect that these derivatives will have. One big downside is being limited to the ASX50. Further, you're paying a fair bit to hedge risk against bluechips that generally arn't that volatile.
*OTC CFDs have guaranteed stop losses and it's cheaper than most options, and therefore not requiring you to hedge, if you can swallow all the risks and counterparty hedging expenses that occur with these questionable derivatives.
I would like to know if anyone is doing this. I am not sure if I have calculated all the risks properly or am correct in general in the effect that these derivatives will have. One big downside is being limited to the ASX50. Further, you're paying a fair bit to hedge risk against bluechips that generally arn't that volatile.
*OTC CFDs have guaranteed stop losses and it's cheaper than most options, and therefore not requiring you to hedge, if you can swallow all the risks and counterparty hedging expenses that occur with these questionable derivatives.
