US Portfolio Hedge

[JulianCohen]

My US portfolio hedge was triggered last night. This is the general market hedge that was discussed in the October ’18 Group Call, not the currency hedge.

I am just hedging my total NASDAQ and SPX portfolios against the SPX instead of splitting them into their constituent indices. I did this because it was easier to manage on a weekly basis when calculating the hedge, and also because the hedge is not supposed to be a precise dollar for dollar protection, just a good general one, so I figured the difference between the two markets wasn’t that great. If SPX falls the NDX does too.

I have my hedge at 2.5 Keltner band under the market and will place a stop loss at the moving average, or cut at the end of the month if the systems go to cash.

So far obviously I’m losing on the hedge, but I am now set up so that whatever happens in the next two weeks, my portfolio is hedged.

[LEONARDZIR]

Julian,
Interesting! What moving average did you use for the keltner channels? What instrument are you using to hedge?

[JulianCohen]

20 day MA, 2.5 Keltner Band (although I might move to 3 in the future depending upon what plays out in the next couple of weeks.

I hedged with ES-2019M which is the June S&P e-mini contract.

[LEONARDZIR]

Thanks Julian

[JulianCohen]

Without the hedge I would have been down 2.27% yesterday. With the hedge I am down 1.36% on the day. My MOC and MR systems were at 95% exposure yesterday and accounted for 1.2% of the daily loss.

[Nick Radge]

Are you hedging the short term systems as well?

[JulianCohen]

No just my WTT and my monthly rotational systems. Basically using the hedge as a stop loss on the systems that I can’t sell until the end of the month. The WTT has a large exit criteria, for example I held two stocks through the whole of the last drawdown as they never hit their exit, so I figured I add that to the hedge as well.

It would be nice to be able to backtest this….

[JulianCohen]

I’ll keep a record here of the daily swings while the hedge is on so you can use it to evaluate the idea.

Last night I was -0.34% on the total account. No short term trades and a loss on the hedge of -0.22%

My Aussie position is unhedged and accounts for a loss to the total of -0.18%

The difference is accounted for with small discretionary positions and a AUD/USD hedge in the futures….My base currency is USD so I have a currency hedge on the falling AUD.

[JulianCohen]

Account total for yesterday + 0.65%

The hedge was a loss of -0.305%
The Long term positions (which were hedged) were +0.41%

[JulianCohen]

Stopped out of the hedge last night for a total cost of -0.75% to the portfolio. I am unsure about wether it is worthwhile to do it again.

Last weekend I wasn’t sure about it. After Monday I was very happy I had it, then the market slowly recovered and I became ambivalent about it.

So if anything I guess it is an emotional crutch…I need to think some more about it.

[Nick Radge]

As I said in our correspondence, it would be very interesting to see how it impacts on Basso’s performance. He seems to get whipped quite a lot on the hedge.

My thoughts are this:

Basso does it to survive a repeat of 1987. That’s like not getting out of bed in case you get hit by a London double decker bus whilst eating breakfast inside a Westfield shopping centre.

It could happen. But you may need to wait 30-years.

If you can’t let the cards fall where they may, then you’ll never get out of bed for fear of being hit by that bus.

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