Hedging
Written on January 14, 2009 – 12:56 pm | by admin
As you may know, I puchased a long dated SPY put (Sep $80) a week or two ago for $6.20. I decided to do this because the biggest thing I learned from all the turmoil in the last year is that never be unprepared for a market catastrophe. To me this means holding some long dated market OTM puts. I will be looking to keep this as part of my portfolio for the forseeable future.
Since I bought my put, the SPY had gone almost 50-60 points before today. During today’s drop and explosion in volatility, I sold my put for $10.20 (67% after commissions). As it stands right now, I have sold at the low of the day. I don’t expect this to be the ultimate bottom but after making 67% in a few days, I have to take it off the table. If I had bought more than 1 contract, I would have sold half and left some of the play on. I do believe that the market is going to bounce (not to 9000) before it re-tries the lows and so I may look to re-enter at that time.
Hedging isn’t for everyone and most of the time I will just lose money but for the next time that Oct/Nov 08 happens, I will be prepared.
Tags: Hedging
