My first article on 100% Portfolio Protection appeared about a month ago. If you are new to this series I urge you to read the entire series. If you already read them, now is a great time to re-read them. Keep in mind the last month’s market fluctuations as they apply to the strategies.
A month ago SPY was trading right around $120. Yesterday it closed, right around $120. During the interim it had many spurts up and down, falling as much as 10% and the rising back up. A wild ride indeed!
Before we can go into what steps you could take now, we need to review what has happened.
There are many lessons that can be learned from this and it’s certainly worth exploring them. Let’s start with those that did nothing. One would think that they are back to even and saved themselves the effort of implementing one of the 100% Portfolio Protection strategies. This is possible, but overall, not likely. The market fell to a low level because investors sold out. It rose back up because investors re-entered.
I’m confident that a large number of investors - those without portfolio protection - let fear take over and sold holdings. If no one sold, the market wouldn’t have dropped.Those that sold likely sat back and then watched the market rise. If they bought back in, it was at higher prices. I also feel pretty confident that many experienced sleepless nights.
Those that had instituted 100% Portfolio Protection were less fearful and held onto their positions. They were, however, tested in setting strike prices for the weekly put sales. Those that followed my suggested “tweaks” for taking advantage of a downturn would have actually made money. Those that followed the suggestions of the “see-saw” market are back to even and had a first-hand field test of the strategies. Learning about what to do and actually doing it are very different experiences.
When the first article and subsequent articles were submitted there was no way of knowing that so many of the hypothetical scenarios would arrive so quickly and so forcefully. The strategies were borne from personal experience with similar markets in 2000, 2003, 2008, 2009 and 2010 so it's likely we've not seen the last of them.
The last month’s gyrations created real-life situations exactly as outlined in the strategies and the strategies performed exactly as predicted. That’s a lot to say for being back to where we started.
Now, let’s look in hindsight to improve the results.
First, if you didn’t institute a 100% Portfolio Strategy, now is the time. Volatility has come down and it’s a whole lot easier. Second, if portfolio protection was put in place when SPY was at a lower level, re-set protection at this higher level. We may not have seen the last test of SPY $110 or lower. Third, if you didn’t work the strategy as suggested, learn from the lost opportunities. They will appear again and again over the years.
Try and take the emotion out of what needs to be done. View every week as a Math Problem - not a market timing problem.
Set the weekly put sales high in-the-money when the market drops and not so high when the market is up. Guessing games are for your investments, not for your Protection Strategy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional Disclosure: I may buy and sell SPY calls and puts.