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David Pinsen
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I founded Launching Innovation, LLC, to bring together developers, designers, and academic finance experts to create easy-to-use tools to solve complex problems for investors.
My company:
Portfolio Armor
My blog:
Steam Catapult
  • Hedging The Dow On A Record Day 6 comments
    May 3, 2013 7:42 PM | about stocks: DIA, GLD

    Hedging The Dow On A Day It Broke 15,000

    The Dow Jones Industrial Average broke above the 15,000 mark for the first time, intraday Friday, on news of a positive jobs report. For investors looking to take advantage of the current euphoria to buy some downside protection against the next correction, the screen capture below shows the optimal puts*, as of Friday's close, to hedge 1000 shares of the SPDR DJIA ETF (NYSEARCA:DIA) against a greater-than-20% drop between now and December 20th.

    As you can see at the bottom of the screen capture above, the cost of this protection, as a percentage of position value, was 0.76%**.

    Possibly More Protection Than Promised

    In some cases, hedges such as the ones above can provide more protection than promised. For a recent example of that, see this post about hedging shares of the SPDR Gold Trust ETF (NYSEARCA:GLD).

    *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 PhD. to sort through and analyze all of the available puts for your stocks and ETFs, scanning for the optimal ones. The screen captures above are from the Portfolio Armor iOS app.

    **Note that, to be conservative, Portfolio Armor calculates hedging cost based on the ask price of the optimal puts. In practice, an investor can often purchase puts for a lower price, i.e., some price between the bid and ask.

    Stocks: DIA, GLD
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Comments (6)
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  • stirdawg
    , contributor
    Comments (10) | Send Message
     
    Can you explain a bit more how this? Thank you.
    6 May 2013, 11:53 PM Reply Like
  • David Pinsen
    , contributor
    Comments (1048) | Send Message
     
    Author’s reply » See this post, which goes into a lot more detail about how to hedge a portfolio using optimal puts on DIA: http://seekingalpha.co...
    7 May 2013, 03:12 AM Reply Like
  • stirdawg
    , contributor
    Comments (10) | Send Message
     
    great, will look it over. thx
    7 May 2013, 08:24 AM Reply Like
  • vermithrax
    , contributor
    Comments (13) | Send Message
     
    Just got it from the app store. You just replaced an entire spreadsheet... Thanks!
    7 May 2013, 11:14 AM Reply Like
  • David Pinsen
    , contributor
    Comments (1048) | Send Message
     
    Author’s reply » Glad to help.
    7 May 2013, 05:01 PM Reply Like
  • Invester Newb
    , contributor
    Comments (87) | Send Message
     
    Any plans to make this app available for Blackberry?
    27 May 2013, 04:08 PM Reply Like
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