Very interesting, thanks. 6% for the year is quite expensive even in calm times but it makes sense – *someone must* take the risk at the end of the day. If you get the timing right it pays off big as you said.

I’m far from a good market timer, but I’m asking because it may prove useful if one needs to cover a time period without missing out on market action.

Say you want to close your company and the process will take 3 months. You want to hedge your business investments and stay invested until the process finishes. Basically, the opposite – a call option if I’m not mistaken.

Hi Michael,

These are difficult and highly volatile times, so would cost a lot more at this specific moment but when I started initiating the hedges in early February when things were not baked in, I can say that it was roughly 1% of my portfolio value for a two month average window of protection. So, during the normal times, if you did it in a regular manner through the year, I would say that it would cost around 6% of your portfolio for the whole year. I would expect that you could even do some additional down move sort of trades to ensure that you can also gain from the down moves (i.e. hold on to some of the positions to expiry and lose the premium but stand to gain if things keep moving down). I actually would have been up maybe 50% if I held on to the positions but once the market was down 15%, I started closing the hedges as I did not think we will be staring at a 35% peak to trough down move.

Best,
Aditya

Very well-timed Aditya, well done. How much would this insurance cost you, percentage-wise, if markets didn’t crash? I’m trying to understand if it’s worth doing in the future.

I had been thinking a while since early January that things were looking very toppy and I wanted to figure out the best way to hedge. After a lot of reading and head scratching I managed to put in some good hedges using Put Spreads on SPY, DIA and QQQ and also VIX options. It was a god send. I managed to save my skin and while I sold the hedges lower than if I had held them on till expiry I did the right thing and closed the hedges as I closed the losing Option and Long Equity positions in the US market. So, all told while I could have made a lot of money by holding on to the long put spreads, I still saved most of my dough and while I am not nibblinb back in the market, I still managed to stay up around +7% YTD on my overall portfolio. So, its good and lesson learned and very timely. Otherwise I would have down big in USD terms.

All the best and keep up the good work.

Aditya