I am looking at oil take a swan dive here, bonds pop a point, and even gold performing a rallyette off its $1,700 low. It all looks like “RISK OFF” to me. So I’m thinking gee, maybe I should hedge some of my downside risk here.
It’s not like the positions are so small that I can skip hedging, as they have been for the last couple of months. Then a large move by financial markets could cause only a small impact on my performance. But I have been bulking up my book lately, adding positions in the (NYSEARCA:TBT), (NYSE:BAC), and running longs in (NYSE:CAT). I have also had an incredible hot streak, and it is time to protect some profits.
Going into this morning, the market had been up two days in a row, which is almost unprecedented in the month of August. This will amount to a big screaming “SELL” to the day traders.
So it seems prudent here to hedge the rest of my portfolio through putting some (NYSEARCA:SPY) puts. The pop in the market at the open delivered by (BAC) was the gift that allowed me to get a great fill. That cuts my delta going into Bernanke’s Jackson Hole speech. I picked the $112 strike, as this is just above the floor of the recent action.
If the Bernanke puts everyone to sleep with his speech and markets rally, I will cover with a small lost. After all, you don’t complain when you buy fire insurance and your house doesn’t burn down. If he disappoints and we revisit $112, I have downside protection. That’s unless we get the entire down move today in anticipation, in which case, I might cover at the close.