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Tom Armistead
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I'm a well-informed retail investor and post on SA in order to expose my thought process to critical examination and comment from readers. It makes me a better investor. I'm particularly proud of bullish macro articles posted in 2009 and later, in which I presented ideas that encouraged me to... More
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  • Putting On A Small Hedge 11 comments
    Mar 10, 2014 10:21 AM | about stocks: SPY

    Putin makes me nervous. Analysis of such material as is available on the internet reveals a macho man with a penchant for politically incorrect observations. Do a search on "Putinisms." Or look for the images of the bare-chested hero riding a horse, which have received rave reviews.

    Plus there was the photo of him with his military advisors looking over some sort of scene in the distance. There were three sets of binoculars in view, which had the appearance of having survived WWI.

    After thinking about it over the weekend, I bought some SPY Dec 2016 220 puts (NYSEARCA:SPY), enough to offset about half of my discretionary portfolio.

    I find it difficult to believe that with Putin at the table, the disputes about Ukraine can be resolved in as conventional way, by diplomacy and compromise. Certainly he has the better hand, from the cards that are visible on the table. I look for him to overplay it.

    The deep in the money puts behave very predictably. In the past, I've had some success with short-term bets against the market, closing them with profits, on the general average. I continue bullish for the long term, but I would like to be paid for watching this situation with Putin/Ukraine play itself out.

    Themes: Hedging Stocks: SPY
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Comments (11)
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  • Ray Merola
    , contributor
    Comments (3083) | Send Message
     
    Hi Tom

     

    Prudent move for a trade investment. I generally ignore most geo-political events, unless I can see a clear, longer-term line-of-sight to it degrading S&P 500 earnings.

     

    I'm using any general / potential market pullback to round out full positions in International Paper (IP) and Nucor Steel (NUE) my two favorite Materials Sector stocks.
    10 Mar, 05:34 PM Reply Like
  • Tom Armistead
    , contributor
    Comments (5219) | Send Message
     
    Author’s reply » Thanks Ray, I have been wondering if I was over-reacting on the Crimean situation, spent a lot of time studying it and finally came to the conclusion that the most likely resolution is along the lines of the Georgia incident in 2008, Bush let it go by very easily.

     

    Longer term the US didn't intervene militarily in Czechoslovakia, the "spring" which the USSR crushed, or in Hungary, the rebellion that was quelled by a massive invasion. So it seems very unlikely we would let things get to that point over Crimea or the whole Ukraine for that matter.

     

    Europe works by committee which is slow, and by consensus, so military action from them is unlikely.

     

    I guess sanctions interfering with trade globally is a negative, not sure how far that would go.

     

    If the market does decline, I'm like you, I have things I would like to do, the hedge at that point would be a convenient source of funds, either at a profit, or a reduced loss.
    11 Mar, 12:01 PM Reply Like
  • lpjblb
    , contributor
    Comments (40) | Send Message
     
    Tom--do you attempt to recover some of your hedge cost by selling shorter term puts? (per Reel Ken strategies)
    11 Mar, 11:40 AM Reply Like
  • Tom Armistead
    , contributor
    Comments (5219) | Send Message
     
    Author’s reply » lpjblb,

     

    I've done so in the past, with mixed results.

     

    At one time, I attempted to hedge so as to protect my portfolio from a downward move of a specific percentage, for instance 10% or 15%. Often the cost is so high that it doesn't make any sense to attempt it.

     

    The way I think about it now is, along the lines of what Ray is saying above, I have some things I plan to do if the market declines, and I expect to liquidate my hedge as a source of funds at that time.

     

    The thing with selling shorter term puts is that it can create a cost of closing the position when I want the use of the funds. I don't sell bare puts ever.
    11 Mar, 11:54 AM Reply Like
  • Greg_Maryland
    , contributor
    Comments (136) | Send Message
     
    Hello Tom,

     

    The current geo-politico news IS scary. While it's unlikely there will be bombs flying, there will be a negative tone for months as this plays out.

     

    I'm doing some things in the near term.

     

    Just placed a bearish put spread on MDY that I'll keep in place for a few days.

     

    I think Poland will be a significant beneficiary of the crisis as I think its likely NATO establishes a base there within the next 18 months. There are two ETF's that track the polish market -- EPOL and PLND and I started a small position in EPOL this week on a dip. I'll be adding more on pull backs.

     

    Longer term, I see Chart industries (GTLS) seeing funding for more LNG terminals in Europe and the supplying countries and have been buying bullish vertical and diagonal call spreads on dips.

     

    Like you and Ray, I have my watch list handy and have been placing limit orders for favored stocks at lower prices.

     

    Thanks for the nudge to look at doing something with the market volatility.

     

    14 Mar, 03:20 PM Reply Like
  • Greg_Maryland
    , contributor
    Comments (136) | Send Message
     
    Forgot one other opportunity that might be of interest.

     

    Ukraine is one of the top three exporters of wheat and there is an ETF (or ETN ?) tied to the futures price of wheat -- WEAT.

     

    It cost less than GLD and will be very volatile if its difficult to get the country's products out to other countries.

     

    14 Mar, 03:41 PM Reply Like
  • Tom Armistead
    , contributor
    Comments (5219) | Send Message
     
    Author’s reply » Greg, you've done some thinking about who stands to benefit when the inevitable occurs. That's more productive than simply going into a defensive mode, for those who have the skills.

     

    I'm staying in my corner of the sandbox, mostly quality constituents of the S&P 500, with a smattering of smaller tech companies based on valuation and margin of security.

     

    I'll be heading out Friday for a hiking trip on the Appalchian Trail, and might stay out for as long as two months, during which I won't be paying very much attention to the markets. As of today, I'm planning to leave the hedge on and don't take it off unless/until something like a 10% decline cuts in. I can't forget China, the giant has feet of clay, think credit bubble.
    15 Mar, 11:07 AM Reply Like
  • expatsp
    , contributor
    Comments (199) | Send Message
     
    I've no idea what's going to happen to the markets, my like is for your hiking trip -- good for you to get away from the computer monitor. Hope you enjoy your vacation.
    15 Mar, 06:20 PM Reply Like
  • Greg_Maryland
    , contributor
    Comments (136) | Send Message
     
    Tom,

     

    Hope its a great trip and look forward to seeing a few pictures.
    16 Mar, 02:03 PM Reply Like
  • Tom Armistead
    , contributor
    Comments (5219) | Send Message
     
    Author’s reply » you could check out my blog at trailjournals.com, trail name swamp fox, I usually post several pictures for each day...
    16 Mar, 02:30 PM Reply Like
  • Tom Armistead
    , contributor
    Comments (5219) | Send Message
     
    Author’s reply » So now I see the following on MarketWatch: "Putin’s pet journo: Russia could turn America into ‘radioactive dust’" There is video that purports to display the newscast, in Russian, a news anchor with a mushroom cloud for background.

     

    Not speaking the language I can't vouch for what he said in the video. Of course anything associated with the WSJ is suspect, right wing wackos are in charge there.

     

    Noting that our intelligence community here in the US is larger than the field strength of our military, no doubt they can analyze the video content and provide Obama with guidance. They could put 15 or 20 thousand of their top men on it and figure out how to take it.
    17 Mar, 08:15 AM Reply Like
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