Muted Gains...

Days like today are a bit frustrating. Part of my overall portfolio strategy is to maintain some healthy hedges, including several Delta neutral positions. To the lay person, that simply means I have some positions that profit when the market goes down and some that profit when it goes up.

Today the market shot up for the typical portfolio, with gains on most indices exceeding 3%. For me? About 1%... that's the price of having a hedged portfolio. I know, I know... it will pay me back when the market is down. I get it. I just want to have my cake and eat it too.

On another note, I'm hoping to get a little back tomorrow. Today the SPX posted GREEN for the fourth day in a row... a rarity in a bear market. When the SPX is up four days in a row, and it's also below it's 200 day moving average, it drops 75% of the time on the following day. Check out the test results I ran on StockFetcher for 2007 and 2008.

Over the past two years there were 12 times that the SPY (a proxy for SPX) met the criteria of being up four days, and being below the 200 day MA. On average, selling short and holding for one day would have profited 3 out of 4 times, for an annualized return of 213%, while the SPX dropped nearly 18%. There are no guarantees in trading, but I like those odds... I think I'll keep the hedge.

Good Trading...