Yeah, you got one heck of a test today!
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Hedging An Appreciated Portfolio
- Thread starter spindr0
- Start date
His made out like a bandit with all his long OTM puts. Good job spindr0!Yeah, you got one heck of a test today!
I have been utilizing options (retail trader) for over 30 years. In 2008-2009 I traded a lot of correlated financial stocks successfully as pairs and in size. I have also dabbled with using the options of higher beta stocks to hedge correlated lower priced issues in the same sector. In all of these travels, as I mentioned in the first post of this chain, I had no experience whatsoever for hedging an appreciated equity portfolio with index options.
Being much older now, income and safety has been becoming more and more important than risk on growth. I'm gradually leaving the hare behind and becoming more of a tortoise. This is what attracted me to these newer "buffered" annuities that offer an annual cap along with 10-20-30 pct of downside protection. And I'd bet that none of this interests anyone here :->)
What i did fail to do was to extend my thanks to beerntrading for all of his patient responses to my many PMs about this topic. Most stunning of all was the revelation of how you can duplicate some of these "buffered" annuities with a combination of options and the underlying index.
After crunching lots of numbers, I realized that if IV is low, this synthetic offers mildly better protection as well as a better return than the index annuity. A second bonus is that with the synthetic, you don't have to commit to multiple years in a contract and you can terminate it anytime you want. Or if you want to continue the process, add the new legs when the one year LEAPs expire. While it's not a deception, I find it ironic that the insurance industry packaged a multi legged combo position and dressed it up to make it look like a much prettier toy (g). So if/when things settle down, I'm going to add some more of this, albeit synthetically, in the SPY (6 months out). I'll update the results if/when an expiration rolls around. Signing off...
Being much older now, income and safety has been becoming more and more important than risk on growth. I'm gradually leaving the hare behind and becoming more of a tortoise. This is what attracted me to these newer "buffered" annuities that offer an annual cap along with 10-20-30 pct of downside protection. And I'd bet that none of this interests anyone here :->)
What i did fail to do was to extend my thanks to beerntrading for all of his patient responses to my many PMs about this topic. Most stunning of all was the revelation of how you can duplicate some of these "buffered" annuities with a combination of options and the underlying index.
After crunching lots of numbers, I realized that if IV is low, this synthetic offers mildly better protection as well as a better return than the index annuity. A second bonus is that with the synthetic, you don't have to commit to multiple years in a contract and you can terminate it anytime you want. Or if you want to continue the process, add the new legs when the one year LEAPs expire. While it's not a deception, I find it ironic that the insurance industry packaged a multi legged combo position and dressed it up to make it look like a much prettier toy (g). So if/when things settle down, I'm going to add some more of this, albeit synthetically, in the SPY (6 months out). I'll update the results if/when an expiration rolls around. Signing off...
I booked the gains in my long IWM puts that were hedging the aforementioned annuity. Had to move on to the SPY because the IWM B/A spreads were Holland Tunnel wide and that prohibited rolling. Too much of a haircut.
Haven't added any synthetic positions to mimic the annuity - IV still too high. I'm just working on improving the hedge on the original position.
With this AM's drop, I converted half of the long SPY puts into a no cost 10 pt wide vertical. Cost of Sep SPY 245/235 bearish put spreads for a debit of 44 cents. LOL. That's the actual cost, not the spread price. With the afternoon bounce, I bought a few more long puts. As long as the market is volatile (and cooperative), I'm going to keep adding no cost hedges. Eventually, I could end up with enough of them so that I'd be wishing for a total market collapse :->)
Haven't added any synthetic positions to mimic the annuity - IV still too high. I'm just working on improving the hedge on the original position.
With this AM's drop, I converted half of the long SPY puts into a no cost 10 pt wide vertical. Cost of Sep SPY 245/235 bearish put spreads for a debit of 44 cents. LOL. That's the actual cost, not the spread price. With the afternoon bounce, I bought a few more long puts. As long as the market is volatile (and cooperative), I'm going to keep adding no cost hedges. Eventually, I could end up with enough of them so that I'd be wishing for a total market collapse :->)