Hedging is hard. It might even be financially dumb.
The last few weeks I have put on some hedges using $SPY Puts. Considering I wrote a post on January 5th called ‘Dow 50,000, VIX 1‘, I must be insane.
I can point exactly to the posts that got me thinking about hedges (here and here), but now that they are mostly worthless, like most other hedges I have ever put on, I am mad at myself once again. Go read those posts, they are fantastic, just my interpretation of them is wrong.
In 2008, I used to get short a lot. Not as hedges, but because the market went down like clockwork. I would wake up, read Joe @upsidetrader, and fire away with his ideas. It really was shooting fish in a barrel. It was to date, once in a lifetime.
Once March 2009 came, and the ‘inconceivable rally‘ (called it so the last 3 years)began, the hedge has been out of my vocabulary.
On January 1, I laid out the stocks I owned in my fund and for clients. I talk about them on the streams as well. The only dog in the group has been $AAPL. The mess in $AAPL stock is not a shocker by any means, as it was already teetering on broken on January 1.
I have sold some $EBAY, $GOOG, $Z (all and wrongggg) and $INTU (all) along the way to today but it is the hedges that have me aggravated.
So what did I learn from this series of lost hedges:
I don’t like hedging. I like cash as a hedge. Losses are part of the business as is giving up partial gains.
Derek Hernquist has a FANTASTIC post up about market divergences. Read it. Print it. If you invest or trade, put it up on your wall in your office or keep it near. It will save you so much time and energy.
I love the markets, the mechanics and the intricacies of it, but you can get to close to it.
If you watch CNBC you lose yourself in ratio’s and nonsense. Josh coined ‘Price to Ego ratio‘ this week and he is dead on.
Hope this helps.