Reduced our Hedge Position

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As we had previously mentioned we would reduce our position in Proshares Ultra Short SP500 (ticker:SDS) with the next market drop and thus did reduce by 25% today.  Originally we had thought of reducing by 1/3rd, but with the modest drop in the markets we cut our reduction a little.


As previously written about the problem with a successful hedge is that one never knows when is the appropriate time  to remove the hedge–removed too early and you incur losses when the markets continue to fall.  Left in place while the market turns and rises means previous gains are eroded. So the only way to look at whether a a hedge is successful is by asking if the position has mitigated losses that would have occurred if the hedge would not have been in place. Our total hedge to date has gained in value by over $3,000 and as such our 25% reduction today was successful by $750–relatively insignificant overall, but yet successful.

Now as we survey the futures markets tonight the DJIA is in a somewhat steep decline of over 200 points, but whether that will worsen overnight is anyones guess. One could say that we ‘screwed up’ on the timing of the removal of a portion of our hedge, but the way we look at it is simply that we are better off than we would have been without the hedge. Period.


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Tim McPartland
Tim McPartland is a private investor with over 45 years of investing experience. His analysis, research and writing is devoted to the hunt for income producing securities of all types, but in particular specializing in preferred stocks, exchange traded debt and Master Limited Partnerships.
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