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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 NV Energy Inc.  0 comments
    Jun 22, 2013 12:13 PM | about stocks: NVE

    Hedging NV Energy Inc.

    Shares of NV Energy, Inc. (NVE) have been hovering near their proposed buyout price since Berkshire Hathaway (BRK.B) subsidiary MidAmerican Energy announced its deal to acquire the company for about $23.75 per share. For NVE investors concerned that a wrench might get thrown into the works of this deal over the next several months, here is a way to hedge over that time period.

    These are the optimal puts*, as of Friday's close, to hedge 1000 shares of NVE against a greater-than-16% drop by November 15th, as of Friday's close.

    As you can see at the bottom of the screen capture above, the cost of this protection, as a percentage of position value, was 0.85%**.

    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 (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: NVE
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