Black Swan Hedging

[Sweet Bobby]

I did a little research on black swan hedges. VIX calls gave more bang for the buck. https://docs.google.com/file/d/1Pbx...BUbiT4c/edit?usp=docslist_api&filetype=msword

 

[Overnight]

I did a little research on black swan hedges. VIX calls gave more bang for the buck. https://docs.google.com/file/d/1Pbx...BUbiT4c/edit?usp=docslist_api&filetype=msword

That's great.

Just buy VX futures when the VIX drops to around 12. 9 is the long-term support level. *shrugs*

 

[Poljot]

Here is another idea: exit longs when the price crosses 100 weeks MA.
This would save one from dotcom crash, 2008 crash and covid crash.
Then enter back in after price moves back above 100 MA.
In addition you have cash ready for bargain purchases.

 

[TazTheLaz]

Here is another idea: exit longs when the price crosses 100 weeks MA.
This would save one from dotcom crash, 2008 crash and covid crash.
Then enter back in after price moves back above 100 MA.
In addition you have cash ready for bargain purchases.

What about false alarms?

 

[MKTrader]

What about false alarms?

Yeah, I glanced at a chart. Lots of whipsaws in years like 2011 and 2015 where the market had 15-20% corrections with many ups and downs. In one week, out the other until the trend is clear.

 

[MKTrader]

For the average 401(k) investor, there are no good passive hedging strategies. Diversification is about the best you can do. There are funds nowdays that will do the active hedging for you, but fees are high, and I can't attest to any of their track records.

Bonds are still the best non-correlated asset class to diversify against stocks. The old 60/40 stock/bond portfolio still has merit in many cases.

60/40 is great if the bond and stock markets repeat their 40+ year bull runs. But historically that hasn't always happened. In fact, it's been quite the anomaly.

 

[picksee02]

@TazTheLaz A few months ago I created a DIY version of what I think Taleb may have done based on Malcom Gladwell's NYer article. I use optionsamurai ($40/mo.) weekly to scan "long puts" of various tickers (not VIX/SP500) that have ten cent/nickel "asks" with expirations week-of or next-week that would be profitable if the underlying fell -40% or less. Only takes a second to scan.

I then filter/sort those Excel results and use Etrade to buy a handful of options (Taleb was buying truckloads). These puts are cheaper and will fall along with the indexes in the event of a crash, IMO focusing on SPY/VIX puts are expensive and unlikely the whole index will be pulled down as much as a basket of individual stocks. I focus on puts because we have a long portfolio (retirement, stocks) thus I dont scan calls, but you could.

More than a hedge this is meant to be cost effective risk-mitigation that raises your wealth - Taleb just wrote that about his partner's new book (Mark Spitznagel).

 

[Poljot]

What about false alarms?

There will be ones, but less often then if following daily moving averages.
If you wait too long for new trend confirmation, exit price will get worse and may end up panic selling.