6 ms·
I have been holding S&P puts as a hedge since the S&P was at 3330, and my portfolio value is at the same level as it was near early Feb highs because of them ev
by tempsy 7y ago
I have been holding S&P puts as a hedge since the S&P was at 3330, and my portfolio value is at the same level as it was near early Feb highs because of them even though my stock holdings are down.
The idea that you should just sit back and be ok with a 20% haircut isn’t something that I will just “take” if I can help it.
- markus_zhang 7y agoIt's a smart move. What's price of the put BTW? Did you feel that people were concerned about an immediate fall that Put was expensive at that moment?
- tempsy 7y agoI’ve bought and sold at different strikes and late March/April expirations for last 2 weeks. At end of Friday I entered $270p for 4/17 at around $6 or so.
- farnsworth 7y agoI bought S&P puts at the wrong time so many times that I just gave up, didn't trust my gut in early Feb, assumed the market would find some strange way to keep going up. Oops.
- gfodor 7y agoWhat’s the point? Instead of spending money on stocks and puts against the same stocks (which costs money), why not just allocate less to stocks in the first place? The reasons I could imagine is if the stock is illiquid (401k, lockup, etc)
- markus_zhang 7y agoOP might not want to lose his positions I guess.
- tempsy 7y agoI’ve sold some stock earlier this month but not everything. I don’t want to sell some that I’ve been holding for a long time for tax reasons.
- bickfordb 7y agoTaxes on reallocating
- nostromo 7y agoCongrats on winning the lottery. Long term yours is a losing strategy.
- remote_phone 7y agoMe too. I bought 10 contracts on SPY puts 5 days before the drop, expiring January. My first target is the Dec 2018 lows but I expect a 50% drop before the end of the year. I love how people are self righteous about the timing but I have been wildly profitable over the last 20 years picking my spots like this.
- empath75 7y agoI agree with that but do you know you’re going to take a 20% hair cut? What if you get out of the market after it drops 6% at the bell tomorrow and then it goes up 1% the day after and 3% the day after that? Do you panic buy back in? What happens if someone finds out that a cheap readily available drug cures it and this whole thing is over in three weeks? I’m extremely pessimistic about the market right now, but I’m more pessimistic that if I traded that I wouldn’t lose more money. I’ve had a big chunk of my 401k sitting on the sidelines for months now. I’m going to wait to see how this virus thing shakes out then use it to buy back in after it looks like the worst is over. Until then, there’s way too much uncertainty to try and trade this. I’m not retiring for twenty years. Whatever happens it should bounce back in 2-3 years or so.
- tempsy 7y agoWell of course I can’t predict the future but we kept hitting all time highs even well into the coronavirus outbreak in early Feb and it didn’t make sense to me. I didn’t think the rally had any more legs to it and bought puts to hedge. As the market kept going down I kept or trimmed the options. The point of using options is that I’m still holding a lot of my stock, so if it bounces back up then it’s just my options that lose value.
- dmoy 7y agoThe market is (or at least has been, cue zombie apocalypse or Japan) almost always hitting or near all time highs. Literally over 5% of days are all time highs. A full third of days are within 5% of the as-of-yet all time high.
- everybodyknows 7y agoRay Dalio gave an interview a couple of days ago in which he predicted insolvency for some sellers of just such far-out-of-the-money puts. Any ideas who these might be, beside hedge funds? In particular, anyone systemically important e.g. shadow banks ...
- deleted 7y ago[deleted]
- hourislate 7y ago>The idea that you should just sit back and be ok with a 20% haircut isn’t something that I will just “take” if I can help it. You don't have to be an active trader to preserve your capital. I've been invested for years but around the 2nd week of Feb, I went 100% cash. This time I saw train and got off the tracks. My plan is to average in slowly over time as the market stabilizes and the news gets better.
- twiceaday 7y agoYou are waving around a winning lottery ticket as evidence of your strategy being better. What is your strategy? First of all, was this put even good? How much of your portfolio did you cover and how much as a fraction did it cost? But much more importantly, how many times have you hedged your portfolio in the last eleven years? Hedges cost money. Market goes up long term. You will lose money long-term by hedging. That's the steady state of your strategy. That's the obvious reason why people don't hedge. I'm puzzled as to why you didn't acknowledge this. Instead, you offer an outlier where hedging performed better. Seems deeply disingenuous.
- manigandham 7y agoYou don't have to do it constantly, and it would only lower your gains, not cause you to lose money unless you're over insuring. All-time highs, inflated money supply, dropping interest rates, trade wars, overbought stocks, overloaded repo markets, bond yield inflection, and more signs over the last few months are a pretty clear signal to engage in hedging.