The principle of option hedging is also very simple. When there is a systemic risk in the market and the underlying asset falls sharply, the put contract premium soars sharply, and the profit from the option position is used to make up for the loss of the stock position to achieve a hedging effect. Therefore, when we hold stocks and prevent losses from sudden risks by buying put options, we are "insuring" the stock assets.

The key to using SSE 50 ETF options for hedging lies in the following aspects:

First, what kind of exercise price put option to buy. (There are three main types: real-value options, at-the-money options and out-of-the-money options. If the risk has already arrived, it is best to buy real-value options to hedge. If there is no risk at the moment, it is best to buy out-of-the-money options below the second level of out-of-the-money options. Options provide systemic risk protection. )

Second, which month to buy put options. (This is based on your own needs. When do you think the risk may arise in the future, the duration of the put option you choose should include this time period)

Third, how much to buy. (This depends on how much risk you want to hedge. If you want to completely hedge, then the absolute value of the put option delta you hold should be equal to the ETF spot. If you hedge 50%, the put option delta is absolutely worth 1/2 of the ETF spot.

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