Delta hedging of a stock portfolio

[Makrela]

Hi all!
I have a question if it is possible to delta hedge a portfolio of stocks with options in order to adjust the whole delta of the portfolio to the level that guarantees the portfolio doesn't fall under the required number?

Well, as I've read the Hull's "Options...", he only gives examples of delta hedging of the positions in options with the stocks and makes the portfolio delta neutral. But I'd like to do it inveresly (delta hedging of stocks with options) and not neutral (I permitt some maximal loss).

The example:
I have portfolio of stocks (well-diversified) that is worth 100 000 USD. Beta of a portfolio is 1.
There are options (calls and puts) on stock indice.

I'd like to hedge myself against losses that are greater than (let's say) 10 000 USD.
I compute delta's of options and buy proper number of puts or sell proper number of calls.

Is it possible??

Thanks in advance,
Andrew

 

[koupparis]

Of course it's possible. How well it works is a different story. Which options are you using to hedge? Index, single name? How well does your portfolio track the index. What is the tradeoff between return secured vs. premium payed? Buying puts is a little better than selling calls (higher premium, but less risk).

So in short, yes, but YMMV.