How to safeguard your portfolio today.

Discussion in 'Trading' started by HedgefundTrader2, Jan 18, 2008.

  1. Having that sinking feeling? Twenty percent account value wiped out? There is no end to this relentless selling? No end in sight? Your stocks beaten to pulp and than someone ran a bulldozer over it? Not only that now you have lost trading capital. Before you do any thing capital preservation should be your top priority any given day when you trade.

    Open two accounts with equal value, it can be with the same broker it doesn't matter. Keep your vulnerable portfolio in one account and the other account flushed with equal amount of cash. You need to have available cash to make this work for you.

    Lets say you own FCX common at 100 and you see it drop to 98 and you see trouble signs on the horizon. Next thing you know it dropped to 95 but came back to 98 and it looks shaky there. Immediately go to the other account and short equal number of shares at 98. No matter what happens now, you are stuck at 98 and it does not matters where the market goes with it. Whatever you lose in one account balances with an equal amount of gain in the other. When the market turns back up take off your shorts at 98 and let the longs run to 110.

    Its called a " box " and was used several years ago by me to avoid paying taxes indefinitely, but since IRS disallowed the whole thing I only use it for protection. Its a well known tactic used by several professionals even today.

    You wont have any tax advantages but your longs will balance your shorts and at any given time you can step out of the arrangement unscathed minus your trading commissions!