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GOOD TO HAVE PROTECTION DURING TIMES LIKE THESE

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With the latest selloff in the markets (As of this writing the S&P 500 is down 10.46% year to date) I thought you might want to hear from some portfolio managers we use for our hedged equity portfolios. See Derek's comments below about the Buy and Hedge strategies.

By Derek Moore - January 17, 2016

As of Friday’s close, the SPY is down 7.88% year to date. So how have our hedged equity portfolios been doing given the market conditions?

In the Buy and Hedge (B&H) Classic version we’ve clustered our hedges around the 185 and 175 put strikes.  If the price of SPY should continue dropping through these levels, the options would start to make money on an almost dollar for dollar basis, thus reducing any further losses.

For the B&H Retirement version our protection levels are concentrated at the 205 and 200 levels. Remember the retirement version of the strategy hedges much tighter as we see in the chart above. Should SPY continue lower, the portfolio will not experience equivalent losses because the market is already below these strikes. The losses would be marginal compared to further decline in the market.

One of the advantages clients using our B&H portfolios have in markets like these is being able to put defined floors in their core equity holdings. In down markets, a B&H strategy protects against catastrophic moves while participating in much of the upside.

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