ML,
Your assumption of BEARX as your hedge is not fully correct. If you check the holdings of BEARX, it's > 70% cash, and the rest is mostly in PM-related stocks. In fact, BEARX increases your PM risk, not decreases. There was an article on MarketWatch.com a couple of days ago that discusses exactly this, but I can't find the page now. I think some of the short ProFund may be better. Thanks for displaying the details of your hedges. I never buy such big amount of put options. Your option value is at almost $15K. I am not experienced enough to know when to get out of my put option before it expires. Obviously the a deep money put is safer than out-of-money put. Besides that, I don't know much else. Any good pointers on valuing options and strategies?
Investing is such a learning and re-learning experiences. After a big quick loss, I realized that I have never prepared myself for various possibilities that may play out. I often just assume one thing and knows that what I will do when that happens. But when the market kept falling for straight six days, I simply didn't know what to do.
My portfolio is completely unhedged, since my shorts often go wrong. I am often too nervous about my short positions that I end up making the wrong emotional decision. I have a lot that I need to learn from you.
You're right about their PM exposure which could be up to 20%. They are shorting via futures/options though. The cash position you see is the collateral.
In the short term it does increase my PM exposure but I have a certain amount of respect for David Tice as a money manager. If you look at BEARX against the 1x bear market funds shown in my post on bear funds you'll see that BEARX did better in 2000-2003. It doesn't make much sense to look at beta if we concentrate on the near term anyway.
We are both students of the market. It's a constant struggle to act against one's emotions. I just pray for a bounce, that would make shorting so much easier.
I have much to learn about options, too. My puts have appreciated a great deal since I bought them. Also you have to compared the amount to the long exposure I have, in this case my fully invested asset allocation portfolio is 35% in domestic equities. The other thing is that you have to apply TA to the underlying stock. When I bought the IWM puts, IWM was near the top of the channel and showing clear divergence. Shorting is more technical than going long, and option buying even more so. That's why I'll stick with bear funds going forward.
If I do write covered calls, it will be when the stock has made a big move up and the momentum is exhausting.
Best of luck. I'm sure you'll do fine since the primary trend is with you.
Commenting by HaloScan
