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American Capital Agency Corp. Message Board

  • turbofever turbofever Mar 19, 2013 1:49 PM Flag

    OT: Help needed on how to hedge/short the market

    Historically, when I've had serious concern about a market pull back, I trim long positions and/or ensure I have plenty of cash to buy on weakness. Every so often I consider buying SPY Puts, or SDOW, SDS, etc.. But can never get myself to pull the trigger; always feels expensive, & seems poor-bang-per-buck for a lower-probability outcome.

    I'm quickly re-thinking that again now, particularly since I have some sizable long positions I want to keep which I can't buy Puts on directly. My holdings aren't over-bought, but they will suffer (are suffering...) none-the-less if (as) the overall market drops.

    Could anyone recommend tactics for good bang-per-buck hedges against a market pullback? In particular I'm looking for some protection through end of May. At that point, several holdings will have gone through catalysts and I'll be willing to sell them if I want to take off risk, rather than exposing myself to losses from shorting a potentially rising market.

    Thanks!

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    • mmichaelr: Thanks for the response/thoughts. I will take a deeper look and see if it might be something I grow interested in & comfortable with down-the-road.

      Mr. Wizard: Sure, if I had strong conviction the market was about to tank heavily, I would indeed get out. But that's not my opinion. I am looking ahead to if the market continues higher and at some point I feel a play on say a 4-5% pullback would be in order. I don't usually play the downside and was looking for ideas including ones that have worked for others. Doesn't look like I'll be getting much ;)

      There are a variety of reasons one might not want to sell positions near where one perceives a near-term market peak MAY be, including:

      A stock has reasonable odds of a large, positive catalyst occurring (unique to that stock) and which could move the stock independent of market direction.

      Owning positions with hefty gains that are close to becoming long-term (1yr) holdings, and being in a higher tax bracket.

    • turbofever !!! Hussman Strategic Growth (HSGFX) mutual fund is a short fund that moves opposite the market. Its now on a 52 week low,i plan to use it when the market corrects. This is simple and comparatively low cost and will work in a long down market.

    • if it bothers you too much, get out. all that a hedge can do is sacrifice some upside to prevent excessive downside, which is why they seem expensive. unless, of course, you can find a sucker.

    • turbo 11 If you have to ask how, DONT !!

    • Get a futures account and take option positions on the index's like the OEX and Mini 500. Consider the premium paid insurance money.

      Those levered ETFs are inefficient past a one to three day holding.

 
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