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Hedging 10 High 'Value, Safety, Timing' Stocks

Oct. 09, 2011 7:52 AM ETMSFT, DECK, GCO, STMP, HCSG, VFC, BKE, DLTR, ANDV, MNKTQ2 Comments
David Pinsen profile picture
David Pinsen
18.67K Followers

VST: Value, Safety, Timing

In recent articles, we looked at the 10 stocks ranked highly according to "Relative Safety" (RS), "Relative Timing" (RT), and "Relative Value" (RV) by VectorVest. In this one, will look at the 10 stocks ranked highest according to VectorVest's master ranking, "VST", which consistes of a weighted average of RS, RT, and RV, with RT overweighted and RV underweighted. The stocks listed in the table below had VST scores ranging from 1.33 to 1.41 on Friday, and were the highest-ranked stocks in the VectorVest-US universe.

Hedging Costs of High VST Stocks

I also looked at the hedging costs for these stocks using optimal puts, and found them to be fairly high, for the most part, but not as high as the high RV stocks. You can see those costs in the table below. First, a reminder about what optimal puts are, and why I've used 20% as a decline threshold; then, a screen capture shows the current optimal puts to hedge one of the stocks listed below, Dollar Tree, Inc. (DLTR).

About Optimal Puts

Optimal puts are the ones that will give you the level of protection you want at the lowest possible cost. Portfolio Armor uses an algorithm developed by a finance Ph.D. to sort through and analyze all of the available puts for your position, scanning for the optimal ones.

Decline Thresholds

In this context, "threshold" refers to the maximum decline you are willing to risk in the value of your position in a security. You can enter any percentage you like for a decline threshold when scanning for optimal puts (the higher the percentage though, the greater the chance you will find optimal puts for your position). I have used 20% thresholds for each of the securities below. Essentially, 20% is a large enough threshold that it reduces the cost of hedging, but not

This article was written by

David Pinsen profile picture
18.67K Followers
I developed the hedged portfolio method of investing at Portfolio Armor, and I run a Marketplace service at Seeking Alpha based on it called Bulletproof Investing.

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SymbolLast Price% Chg
MSFT--
Microsoft Corporation
DECK--
Deckers Outdoor Corporation
GCO--
Genesco Inc.
STMP--
Stamps.com Inc.
HCSG--
Healthcare Services Group, Inc.

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