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Toppy Tuesday – Hedging Ahead of the Fed

What a market!   I know it's hard to talk about hedging when the market is doing so well but that's the lesson of Joseph and the Pharoh from the Bible – you have to prepare for the bad times DURING the good times or you get screwed.  As a rule of thumb, we like to put 25-33% of our unrealized portfolio gains into our hedges in order to lock them in against a downturn.  If we do our jobs well, we get out of our longs ahead of a correction and ride the shorts down to even more profits – that's been working well for us for the past two years .   At PSW, our two main portfolios are our Long-Term and Short-Term Portfolios (LTP and STP) and, very simply, the STP has our hedges as well as fun short-term plays while the LTP is generally full of bullish plays.  We started with $500,000 in the LTP and $100,000 in the STP back in October of 2019 – after cashing out our previous set with a $2M balance (up 233%) that September.  Now we're back over 2M again and it's very tempting to just cash out but the market has been so strong – and our long positions are so good – we don't have a good enough reason to sell yet.  So we hedge…. Our last STP Review was May 14th and our STP was up 40% at $281,128 (we had added $100,000 from the LTP when the STP was down to $50,000 after the big rally last year) and, as of yesterday's close, we're up 21% at $242,088, so we've lost $39,040 this month but the combined balance with the LTP is positive – and that's what we care about.  We're hedged pretty much to neutral – not really trusting what I believe is a toppy market.   We made 4 changes to the STP last month and we felt adequately hedged and we also added a lot of LTP positions to shift a bit more bullish – but nothing too crazy.   XRT – Our short play on retail did not work out – total loss. SCO – They …

What a market! 

I know it's hard to talk about hedging when the market is doing so well but that's the lesson of Joseph and the Pharoh from the Bible – you have to prepare for the bad times DURING the good times or you get screwed.  As a rule of thumb, we like to put 25-33% of our unrealized portfolio gains into our hedges in order to lock them in against a downturn.  If we do our jobs well, we get out of our longs ahead of a correction and ride the shorts down to even more profits – that's been working well for us for the past two years.  

At PSW, our two main portfolios are our Long-Term and Short-Term Portfolios (LTP and STP) and, very simply, the STP has our hedges as well as fun short-term plays while the LTP is generally full of bullish plays.  We started with $500,000 in the LTP and $100,000 in the STP back in October of 2019 – after cashing out our previous set with a $2M balance (up 233%) that September.  Now we're back over 2M again and it's very tempting to just cash out but the market has been so strong – and our long positions are so good – we don't have a good enough reason to sell yet.  So we hedge….

Our last STP Review was May 14th and our STP was up 40% at $281,128 (we had added $100,000 from the LTP when the STP was down to $50,000 after the big rally last year) and, as of yesterday's close, we're up 21% at $242,088, so we've lost $39,040 this month but the combined balance with the LTP is positive – and that's what we care about.  We're hedged pretty much to neutral – not really trusting what I believe is a toppy market.  

We made 4 changes to the STP last month and we felt adequately hedged and we also added a lot of LTP positions to shift a bit more bullish – but nothing too crazy.  

  • XRT – Our short play on retail did not work out – total loss.

  • SCO – They


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