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Home Portfolio Allocation Hedge Ratio Long Short Position 100% Hedged

Long Short Position 100% Hedged

On 7/13/2012 our Long / Short hedging strategy moved from aggressively hedged (using put options, or an actively managed short fund like HDGE, or midterm volatility like VIXM or VXZ) to a full hedge using a short of the S&P 500 index.  We’re still long 50% of the portfolio with stocks that we believe will out perform in an up trending market and short 50% using the S&P 500 index.

When we’re in this position our expectation is that we’ll make money if the market moves higher (our long stocks should out perform).  We expect to lose a little money if the market moves sideways or down…but that’s the price of insurance.

The current hedge ratio is 1.

On the chart below the green lines get wider as we add exposure.  The yellow lines get wider as we remove exposure by adding hedges.  The red line indicates an aggressive hedge.

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