Hedging
Posts about hedging a portfolio — protection sizing, when to hedge, when not to hedge, and hedge effectiveness.
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The best portfolio construction idea I ever borrowed
The best idea I ever borrowed on portfolio construction: you don't have to choose between being fully invested and being protected.
One dealer position explains both VIX mechanics
The VIX usually bleeds into its expiry. When it does go, it goes violently. The same dealer positioning explains both.
The skew is one of the best early-warning systems
The volatility skew is one of the best early-warning systems in markets.
Why pros buy options that expire worthless
Crash protection puts lose 99% of the time. Pros still buy them.
Alpha book up 3.71%: Delta did the work
Decent week. Alpha Gen book up 3.71%, almost all of it from the Delta sleeve. Long-only also recovered nicely.
The equity skew finally caught up
Last week I was banging the drum about equity skew being way too cheap.
The hedging trap that catches you in month four
Hedging a long-only book sounds simple until you've been doing it for three months and the market has only gone up.
Why I keep a 20-30% hedge ratio...
Before the end of the decade, the market is likely to have a problem. The problem is that these things take a ridiculously long time to actually materialise though
Roll your hedges up, or pay for it later
One thing I've been thinking about given where the market is...
Stop cheering for your hedges to work
Your hedge has one job. Take enough sting off the move that you don't capitulate on the core position.
How to defend a long without selling it
For long-term holders sitting on real gains, this is one of the cleanest ways to ride out an event without giving up your seat.
Hedges should lose money
Your hedges should lose money. That's the whole point. If your put spreads bleed in a rally, good.
Two books or one?
Do you run two mental accounts? "My portfolio" over here. "My options trades" over there. Completely separate books.
Why I rolled into a put fly
SPX at 6,380 and I just banked profits on my put spreads. A sharp squeeze higher is building...
Your hedge is bleeding you dry
Buying puts every month to hedge your portfolio is a guaranteed way to bleed money. Most puts expire worthless
Stop overpaying for protection
Your hedge is expiring. Vol just spiked. The obvious move is to roll into another put. Don't.
61% hedged. And I'm taking it lower.
"Hedge your entire portfolio so you're fully protected." Sounds responsible. Until you do the math.
Not all put buying means the same thing
"Record put demand, must be close to a bottom." I keep seeing this take. And historically, heavy put buying does line up with bottoms.
$50 billion moves a $50 trillion market
The US stock market is worth $50 trillion. The amount that actually moves it on any given day? About $50 billion. One one-thousandth.
You may be hedging away your edge
Implied correlation used to sit around 60% when I started running dispersion. If you liked a single-stock position, you had time.