Hedging Question

[Toddsterpatriot]

II have ended up with a portfolio beta of 0.1-..2.this makes finding a hedge insanely difficult. SPLV at $36.08 and beta 0.77 which I round up to 0.8 means each straddle insurance policy comes in lumps of 14,400 to 28,800 or maybe worse since I round up my own Beta as well and the range is -.23 -+.27, which I listed as -.2-+.3 so my dollar cost average is likely to be off to the downside. Also as you may have noted I rounded down coverage.

Any safety plays to avoid insuring my positions at more than double value?

Short SPY.

 

[danielpalos]

what about options for shorting SPY?

 

[Toddsterpatriot]

what about options for shorting SPY?

Options on SPY?

 

[danielpalos]

yes; put and call options.

 

[Toddsterpatriot]

yes; put and call options.

Yeah, he could buy SPY puts or sell SPY calls to hedge.

 

[danielpalos]

it seems easier to straddle a potential position that way.

 

[Toddsterpatriot]

it seems easier to straddle a potential position that way.

Selling the SPY itself is pretty simple.
And you don't have to put the hedge back on when the options expire.

 

[danielpalos]

is it possible to "hedge" a short position as well with options?

 

[william the wie]

is it possible to "hedge" a short position as well with options?

yes with a call. But why short if options are available and you can buy a put instead?

 

[danielpalos]

it depends; it could have been a good trade at the time, and could now be dollar cost averaging for that position on a good deal on any retracemtent.

or,

it could be a bad trade that is in the red and hope to salvage that trade with a hedge on a good deal on any retracement, instead of dumping the position and taking that loss, sooner rather than later.

 

[Toddsterpatriot]

is it possible to "hedge" a short position as well with options?

yes with a call. But why short if options are available and you can buy a put instead?

Maybe the options are illiquid?

 

[danielpalos]

i didn't think of that. it is a drag when there is no open interest. sometimes i wish chics would just pump and dump me.

 

[william the wie]

Why trade equities anyway except as part of a permanent portfolio?

 

[william the wie]

Do you know that the majority of returns in all capital markets over the past 100 or more years have been he result of reinvestment of returns? The purpose of hedging is to reduce the size and frequency of losses, not to get more gains.

 

[danielpalos]

Why trade equities anyway except as part of a permanent portfolio?

why not trade a good deal wherever it may be found?

 

[danielpalos]

Do you know that the majority of returns in all capital markets over the past 100 or more years have been he result of reinvestment of returns? The purpose of hedging is to reduce the size and frequency of losses, not to get more gains.

yes; but, why not set "lofty goals" even we "miss the mark".

 

[william the wie]

Do you know that the majority of returns in all capital markets over the past 100 or more years have been he result of reinvestment of returns? The purpose of hedging is to reduce the size and frequency of losses, not to get more gains.

yes; but, why not set "lofty goals" even we "miss the mark".

A bear market is defined as 20+% down to get to 80% of original investment and it happens fast. Gains tend to be slower generally 7.4% or slightly over 3 years to get back to even. with the range over the past 100 years from as little as three months to more than two decades. Do what you want to do but the bookie always wins his PC so I prefer to be the bookie.

 

[danielpalos]

i agree that it depends on what the markets will bear at any given time.

however, we are just discussing hedging options.

What about a scenario where the hedge is also long but in a different market or commodity?

 

[william the wie]

i agree that it depends on what the markets will bear at any given time.

however, we are just discussing hedging options.

What about a scenario where the hedge is also long but in a different market or commodity?

that does work. KMI and PAA are pure play pipeline companies, there are various pipeline service companies (many of which I have positions in), royalty trusts that have capitalized the owner's royalties and many low debt wildcatters (many of which I have positions in) that are picking up adjacent fields dirt cheap from the creditors of the high debt wildcatters.

What is being ignored is that these 4 types of investment are being priced at different discounted marginal costs of energy that range from $2-60/bbl and that $2/bbl figure reflects the price of Natural Gas in PA from fields serviced by pipelines. The prices of KMI and PAA reflect the prices for crude but not NG. The natural gas is not worth enough to ship without pipelines and all fields have some. There are all sorts of interesting possibilities, ten by my count, to play the confusion about future energy prices.

 

[danielpalos]

what is your opinion of binary options?