Tom Armistead's  Instablog

Tom Armistead
Send Message
I am a retired accountant, having spent the early years of my career in the insurance industry and the later part in the field of accounting. My insurance experience has given me the willingness to accept investment risk if I feel the return justifies it; also, an interest in applying risk... More
My blog:
Tom Armistead's Instablog
  • Trimming The Sails 1 comment
    Feb 29, 2012 10:26 AM | about stocks: SPY

    After giving it some thought last night and this morning, I reduced my positions to raise cash to about 25% of portfolio. Of course, the upward revision on 4th quarter GDP was welcome, and the market is rallying sedately.

    Using a ratio of GDP to S&P 500, based on historical averages the market is getting fairly close to a midpoint. If and when the S&P 500 hits 1,400, from my point of view expected returns going forward are about 5% annualized, not a compelling reason to be in equities.

    If I use an alternative method, relying on the ratio of GDP to corporate profits, a midpoint of 1,600 would be indicated. There is ongoing concern that margins, which are at historical highs, will be coming under pressure. The alternative method gives a higher indication because margins have been so fat lately.

    The portfolio consists almost exclusively of options - diagonal call spreads, long deep in the money LEAPS and short covered calls against them. Computing leverage on a dollar delta basis, I just reduced it from 1.67:1 to 1.36:1. About 1.2:1 would be more appropriate, so I will be looking to reduce exposure further if the market continues to rally.

    The point is, there is less reason to use leverage when returns are expected to be modest, and the risk of giving back gains on a correction increases as the market continues to make new highs.

    Stocks: SPY
Back To Tom Armistead's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (1)
Track new comments
  • pemdas1
    , contributor
    Comments (263) | Send Message
    Agree, a little sell into this rally is prudent.
    29 Feb 2012, 11:26 AM Reply Like
Full index of posts »
Latest Followers


  • $CRC filed 8-K, they amended their covenants. Being thrown out of S&P 400 mid-cap index, OXY unloading its remaining shares, I added today
    Feb 24, 2016
  • $CRR just noticed a form SC 13G, Wilks Bros, Dan and Staci Wilks own about 10%. Texas billionaires. Compare that to the huge short interest.
    Jan 16, 2016
  • $CRC reveals they have received a 24 month modification of their term loan and revolver. This reduces potential financial stress.
    Mar 24, 2015
More »

Latest Comments

Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.