# Hedging Question



## william the wie (Sep 12, 2015)

II have ended up with a portfolio beta of 0.1-..2.this makes finding a hedge insanely difficult. SPLV at $36.08 and beta 0.77 which I round up to 0.8 means each straddle insurance policy comes in lumps of 14,400 to 28,800 or maybe worse since I round up my own Beta as well and the range is -.23 -+.27, which I listed as -.2-+.3  so my dollar cost average is likely to be off to the downside. Also as you may have noted I rounded down coverage.

Any safety plays to avoid insuring my positions at more than double value?


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## DarkFury (Sep 12, 2015)

william the wie said:


> II have ended up with a portfolio beta of 0.1-..2.this makes finding a hedge insanely difficult. SPLV at $36.08 and beta 0.77 which I round up to 0.8 means each straddle insurance policy comes in lumps of 14,400 to 28,800 or maybe worse since I round up my own Beta as well and the range is -.23 -+.27, which I listed as -.2-+.3  so my dollar cost average is likely to be off to the downside. Also as you may have noted I rounded down coverage.
> 
> Any safety plays to avoid insuring my positions at more than double value?


*Coal company stocks suck right now at less then 2 bucks a share. 
With 15 moths to go they could lose a little more. If the GOP is elected they are expected to soar but if you are looking at "parking" it would work.

If the GOP wins the profit margins could far exceed any tax issue.*


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## william the wie (Sep 12, 2015)

Thanks, but given the rates of NG fields discovery and the PEs on major pipeline companies it looks like the world price of NG/BTU could be less than that of coal in as little as five years. In fact Australia is changing over some coal fields to NG fields because they pollute less and it is cheap to do so. (A PR campaign "little black rock" backfired badly.) So, now the idea is drill some shafts, place thermite charges, seal the field and get low pollution returns when the charges cut loose.


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## DarkFury (Sep 12, 2015)

william the wie said:


> Thanks, but given the rates of NG fields discovery and the PEs on major pipeline companies it looks like the world price of NG/BTU could be less than that of coal in as little as five years. In fact Australia is changing over some coal fields to NG fields because they pollute less and it is cheap to do so. (A PR campaign "little black rock" backfired badly.) So, now the idea is drill some shafts, place thermite charges, seal the field and get low pollution returns when the charges cut loose.


*Forgot you were an Aussie. Does your tax code allow profits/loss from overseas? If they do you can still offset gains by just placing you loss leader here.*


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## william the wie (Sep 12, 2015)

DarkFury said:


> william the wie said:
> 
> 
> > Thanks, but given the rates of NG fields discovery and the PEs on major pipeline companies it looks like the world price of NG/BTU could be less than that of coal in as little as five years. In fact Australia is changing over some coal fields to NG fields because they pollute less and it is cheap to do so. (A PR campaign "little black rock" backfired badly.) So, now the idea is drill some shafts, place thermite charges, seal the field and get low pollution returns when the charges cut loose.
> ...



no legally I'm non-reservation native American, Cherokee, and my ancestral village is in Jackson's Gap Alabama. During the transportations the US Army couldn't figure out how to find Horseshoe Bend. I reside in FL and I keep u[ with the international news.


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## danielpalos (Sep 12, 2015)

william the wie said:


> II have ended up with a portfolio beta of 0.1-..2.this makes finding a hedge insanely difficult. SPLV at $36.08 and beta 0.77 which I round up to 0.8 means each straddle insurance policy comes in lumps of 14,400 to 28,800 or maybe worse since I round up my own Beta as well and the range is -.23 -+.27, which I listed as -.2-+.3  so my dollar cost average is likely to be off to the downside. Also as you may have noted I rounded down coverage.
> 
> Any safety plays to avoid insuring my positions at more than double value?


Have you considered short selling?


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## william the wie (Sep 14, 2015)

danielpalos said:


> william the wie said:
> 
> 
> > II have ended up with a portfolio beta of 0.1-..2.this makes finding a hedge insanely difficult. SPLV at $36.08 and beta 0.77 which I round up to 0.8 means each straddle insurance policy comes in lumps of 14,400 to 28,800 or maybe worse since I round up my own Beta as well and the range is -.23 -+.27, which I listed as -.2-+.3  so my dollar cost average is likely to be off to the downside. Also as you may have noted I rounded down coverage.
> ...



Yes. While a great tool for dealing with converts like many low rated bonds shorting is too blunt, costly and risky a tool for my purposes at this time. Come May 1st to Nov.1st being both short and long on a portfolio avoids risk in the low return half of the year. The difficulty with that strategy is my wife wants an in town office in case some accounting change screws up her tax accounting as it did earlier this year. So, while now Gail can go scream at Mike about taxes it has screwed up my usual strategy.


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## danielpalos (Sep 14, 2015)

william the wie said:


> danielpalos said:
> 
> 
> > william the wie said:
> ...


what about risk management through diversification of markets, such as options, futures, etc.


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## william the wie (Sep 15, 2015)

danielpalos said:


> william the wie said:
> 
> 
> > danielpalos said:
> ...


Sorry about the wait for a reply but I wanted to wait to see if we would have a countertrend turnaround Tuesday before making my decision. That's a semi-reliable indicator of heightened volatility.

Since the US is the world's cleanest dirty shirt I bought 3 long dated SPLV straddles as a volatility play today


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## danielpalos (Sep 15, 2015)

Hope you get enough volatility.


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## danielpalos (Sep 15, 2015)

I think over the counter stocks can be a good experience.


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## william the wie (Sep 15, 2015)

I suspect I will


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## saveliberty (Sep 15, 2015)

What if the Fed rate increase is already priced into the market?  Actually raising the rate may eliminate the uncertainty and the market rebound.


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## william the wie (Sep 15, 2015)

danielpalos said:


> I think over the counter stocks can be a good experience.


They can be but I prefer safety to higher return so I can get return of my capital as well as return on it.


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## william the wie (Sep 15, 2015)

saveliberty said:


> What if the Fed rate increase is already priced into the market?  Actually raising the rate may eliminate the uncertainty and the market rebound.


Quite true that's why I am hedging with straddles. The stronger dollar creates a twofer for hot money: Get decent returns in the world's least corrupt and rigged markets while making a profit on the currency. That sir, is the recipe for upward trend volatility. We will get IPOs for a product to be named at a later date. To give an extreme example Austin is the start up capital of the world but most Americans don't know that. For that matter if my wife and I hadn't seen that CNBC report on NBR I wouldn't know that. I don't recall if that was per capita or in absolute numbers. However the number of foreign investors who know that is much smaller in percentage terms and maybe absolute numbers than for American investors. That northern AL is a major aerospace hotspot is another major unknown for most of the world's investors.


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## danielpalos (Sep 16, 2015)

william the wie said:


> danielpalos said:
> 
> 
> > I think over the counter stocks can be a good experience.
> ...


what about a simple "higher risk management fund" to help with "diversification" and "strategies" to explore that market?


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## william the wie (Sep 16, 2015)

That's a flat rip-off based on a few disproved postulates of the efficient market hypothesis.

When actual inefficiencies are found in the market they are exploited until they quickly disappear.
The presidential and census cycles persist because they are part of the Constitution. The Mayday/Hallowe'en cycle is ultimately driven by annual seasons. These cycles ain't going to disappear.

Economic actors are rational according to the definition used by economists. Economic Nobels have been given for disproving this assumption, most recently Shiller's.

The need for non-economic rationality in breeding for example means that higher risk instruments are used for bragging rights not economic returns. Therefore higher risk results in lower returns


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## danielpalos (Sep 16, 2015)

i am learning how to "short sell" "emotional investments" for hedging purposes.


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## william the wie (Sep 16, 2015)

danielpalos said:


> i am learning how to "short sell" "emotional investments" for hedging purposes.


Find out:
dividend and buyback rates
the amount of margin you'll get tagged with and interest rate you'll pay.
Then print it out in case you have to do to arbitration. IC3.gov is the reporting place for white color crime but expect your complaint to take awhile to work through the queue.


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## danielpalos (Sep 17, 2015)

I usually factor for overhead costs; and, I am learning to Only use "risk capital" for my investment purposes.


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## Toddsterpatriot (Sep 18, 2015)

william the wie said:


> II have ended up with a portfolio beta of 0.1-..2.this makes finding a hedge insanely difficult. SPLV at $36.08 and beta 0.77 which I round up to 0.8 means each straddle insurance policy comes in lumps of 14,400 to 28,800 or maybe worse since I round up my own Beta as well and the range is -.23 -+.27, which I listed as -.2-+.3  so my dollar cost average is likely to be off to the downside. Also as you may have noted I rounded down coverage.
> 
> Any safety plays to avoid insuring my positions at more than double value?



Short SPY.


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## danielpalos (Sep 18, 2015)

what about options for shorting SPY?


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## Toddsterpatriot (Sep 18, 2015)

danielpalos said:


> what about options for shorting SPY?



Options on SPY?


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## danielpalos (Sep 18, 2015)

yes; put and call options.


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## Toddsterpatriot (Sep 19, 2015)

danielpalos said:


> yes; put and call options.



Yeah, he could buy SPY puts or sell SPY calls to hedge.


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## danielpalos (Sep 19, 2015)

it seems easier to straddle a potential position that way.


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## Toddsterpatriot (Sep 19, 2015)

danielpalos said:


> it seems easier to straddle a potential position that way.



Selling the SPY itself is pretty simple.
And you don't have to put the hedge back on when the options expire.


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## danielpalos (Sep 19, 2015)

is it possible to "hedge" a short position as well with options?


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## william the wie (Sep 19, 2015)

danielpalos said:


> is it possible to "hedge" a short position as well with options?


 yes with a call. But why short if options are available and you can buy a put instead?


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## danielpalos (Sep 19, 2015)

it depends; it could have been a good trade at the time, and could now be dollar cost averaging for that position on a good deal on any retracemtent. 

or,

it could be a bad trade that is in the red and hope to salvage that trade with a hedge on a good deal on any retracement, instead of dumping the position and taking that loss, sooner rather than later.


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## Toddsterpatriot (Sep 19, 2015)

william the wie said:


> danielpalos said:
> 
> 
> > is it possible to "hedge" a short position as well with options?
> ...



Maybe the options are illiquid?


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## danielpalos (Sep 19, 2015)

i didn't think of that.  it is a drag when there is no open interest.  sometimes i wish chics would just pump and dump me.


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## william the wie (Sep 19, 2015)

Why trade equities anyway except as part of a permanent portfolio?


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## william the wie (Sep 19, 2015)

Do you know that the majority of returns in all capital markets over the past 100 or more years have been he result of reinvestment of returns? The purpose of hedging is to reduce the size and frequency of losses, not to get more gains.


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## danielpalos (Sep 20, 2015)

william the wie said:


> Why trade equities anyway except as part of a permanent portfolio?


why not trade a good deal wherever it may be found?


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## danielpalos (Sep 20, 2015)

william the wie said:


> Do you know that the majority of returns in all capital markets over the past 100 or more years have been he result of reinvestment of returns? The purpose of hedging is to reduce the size and frequency of losses, not to get more gains.


yes; but, why not set "lofty goals" even we "miss the mark".


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## william the wie (Sep 20, 2015)

danielpalos said:


> william the wie said:
> 
> 
> > Do you know that the majority of returns in all capital markets over the past 100 or more years have been he result of reinvestment of returns? The purpose of hedging is to reduce the size and frequency of losses, not to get more gains.
> ...


A bear market is defined as 20+% down to get to 80% of original investment and it happens fast. Gains tend to be slower generally 7.4% or slightly over 3 years to get back to even. with the range over the past 100 years from as little as three months to more than two decades. Do what you want to do but the bookie always wins his PC so I prefer to be the bookie.


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## danielpalos (Sep 20, 2015)

i agree that it depends on what the markets will bear at any given time.

however, we are just discussing hedging options.

What about a scenario where the hedge is also long but in a different market or commodity?


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## william the wie (Sep 20, 2015)

danielpalos said:


> i agree that it depends on what the markets will bear at any given time.
> 
> however, we are just discussing hedging options.
> 
> What about a scenario where the hedge is also long but in a different market or commodity?


that does work. KMI and PAA are pure play pipeline companies, there are various pipeline service companies (many of which I have positions in), royalty trusts that have capitalized the owner's royalties and many low debt wildcatters (many of which I have positions in) that are picking up adjacent fields dirt cheap from the creditors of the high debt wildcatters.

What is being ignored is that these 4 types of investment are being priced at different discounted marginal costs of energy that range from $2-60/bbl and that $2/bbl figure reflects the price of Natural Gas in PA from fields serviced by pipelines. The prices of KMI and PAA reflect the prices for crude but not NG. The natural gas is not worth enough to ship without pipelines and all fields have some. There are all sorts of interesting possibilities, ten by my count, to play the confusion about future energy prices.


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## danielpalos (Sep 20, 2015)

what is your opinion of binary options?


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## william the wie (Sep 20, 2015)

danielpalos said:


> what is your opinion of binary options?


 Special expertise, when it does exist and that is rare but does sometime happen, is subject to one of three outcomes:

Everybody learns it and the special expertise vanishes.

The expertise is banned by law.

The expertise involves personality traits that are rare. The Value Line caused an exception to the Efficient Market Theorem for this very reason. It is the Fundamentalist exception. Most people can't figure out company reports well enough to gain an advantage relative to using a simple stock screen. Also patience is required. The people who use Value Line are a small minority of all investors who fairly rapidly get too big to usefully use the service so the service is pricey as well.

NADEX claims widespread special expertise in ads that barely stay within what can legally be claimed.


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## danielpalos (Sep 20, 2015)

what are your thoughts on precious metals?


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## william the wie (Sep 21, 2015)

danielpalos said:


> what are your thoughts on precious metals?


They are part of a balanced portfolio but don't go ape about it. Google balanced/couch potato/lazy man portfolio or simply go to the forum index and look up the threads and links on the subject here.


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## danielpalos (Sep 21, 2015)

i like the demo accounts for free, when i don't have any real money.  

if only i could find nice girls "to demo" with in modern times.


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