I currently have a portfolio that was hit hard during the Covid-19 fall that bottomed out this past March (-40%). Thankfully, I'm close to breakeven on the at today. The portfolio is a variation of a Risk Parity portfolio with allocations in Gold, Bond, and Equities. I did consider this portfolio already hedged with the Gold and Bonds prior to Covid. But now I am looking for some additional hedging. My current thoughts are to buy OTM puts or calls on a variety of S&P500 related items (VIX, SVXY, UVXY, UPRO) that are 6 months out. Ideally, I would be wanting to allocate 0.5% of the portfolio to this option hedge. I did some quick historical price checking on the options with TOS onDemand feature. Hopefully, these prices are historically accurate. But the only option play that looked promising was OTM UVXY call strikes 6th months out (strike prices 90 and 100) and 1 year out (strike price 180). The goal of this hedge isn't to see high returns given a down market but to more or less weather the storm. If the market is down 30% and I'm down 10%, I would consider that success. Looking at buying the OTM calls for UVXY for Jan21, the options are not liquid and have large spreads. So, of course, implementing this hedge isn't as easy as I was hoping. Are there other hedging strategies or vehicles that I can investigate? Has anyone else discovered a good hedging alternative? Any insight or feedback is greatly appreciated. Thanks in advance!
Only 1 real choice... buying puts on SPY(?). You could perhaps buy something you think will go up as the SP goes down, but I don't know what that would be. (Gold?) Everything else merely locks in your present price, more-or-less. Might as well go to cash as that.
I know hindsight is all well and good and it caught everyone by surprise, but this is the real lesson here. You should never let your portfolio get this low, should have cashed out. Hey I made similar mistakes so chastising myself too. When the shit hits the fan soon (and it will!) don't make the same mistake again . Fundamentals are way way off stock valuations. There it's literally no reason for the S&P500 to be this high apart from false short term expectation.
I think you're right about the SPY puts. They are the most liquid. Of course now the IV is making the prices much higher. Also, my portfolio has about 15% Gold exposure, so I think that is adequate for now.
A bit busy now. Do some reading here and ask if you have questions after that. But basically, you just sell X number of e-mini S&P 500 futures contracts. You need to calculate how many based on the worth of your portfolio. There's e-micros available also, so you should easily be able to create a hedge in which any way you want. If the market falls you'll profit on your futures contract which offset the loss in your portfolio. If the market rises you'll lose your portfolio gains to offset your futures contract loss. One way to hedge could be to have a sell order resting in the market, but a bit below the current market. That way it's not triggered unless the market actually takes a dive. That's probably what I would do. Options can be more sexy, but generally requires a bit more brain power and knowledge. https://www.cmegroup.com/education/whitepapers/hedging-with-e-mini-sp-500-future.html
0.5%%%%% Do you consider that percent even enough??? I could see 5%. But 0.5% wouldn't even make a difference.