nice self describing statement only 2 options? add size? reduce? not sure what OP is trading,but if it's a stock portfolio another option would be to filter out volatile stocks or switch to less volatile. but again-hard to give any advise(besides cut size) without knowing at least some details. i agree with others about volatility. this is nothing. gradual decent with every other day opens flat,no 1-2-3 % gaps either way.
taking profits is one thing, reducing size is another. If a position isn't worth defending, why commit even a miniscule amout of your capital to it? Surely those resources could be used more effectively elsewhere. No, I didn't say add or reduce, I said add or get flat.
Two thoughts. If we learned anything during the financial crisis, it is that correlations go out the window in a true shitstorm. Long-short strategies are vulnerable because the smart money often have similar positions. Two, if you actually are wondering if you should reduce exposure, the mere fact that you are entertaining the question provides the answer. The old adage is "when in doubt, get out."
I understand that the volatility is nothing crazy as of yet, but market is on the brink now. Should S&P fall below 200 day MA of1280, I fuuly expact we start seeing 2-3% moves, and a VIX of 30-40. That's nothing comapred to 08, but is alot more volatile then the first 4 months, and more similar to Aug-Sep 11. As I said, I will monitor positions closely, while probably reducing 5% over the next couple of days.
yeah, or you can do it the oldtime way, "I'm in doubt, but I'm always in doubt, and I always close out at the worse possible time, the big boys are in and they know what they are doing, I'm just small, and all small traders are getting out, so I should do what the big boys do and add more, that's how Jamie Diamon does it and look at JPM, that could be me someday."
What you're describing isn't "hedging" at all - it's plain old trading. Or market timing, if you prefer. (There's nothing wrong with trading, if that's what you want to do.)
Ok, not a lot of substance advice. But some here gave some decent advice. Will see how the day will look tomorrow. It seems to me that tomorrow we might get a bounce, & maybe even a strong bounce.
Sharpe would take profit to keep his equity curve rising, but we do not know how he is hedging. Is he long and short a single instrument? Multiple instruments? How is the correlation? Is he hedging via options on a directional position? We don't know what the OP is doing. So, OP you need to tell us a bit more.