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Strategies & Market Trends : Hedging Strategies; How to Hedge Unrealised Gains

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To: Topannuity who wrote ()	12/25/1999 4:04:00 PM
From: Topannuity	Read Replies (2) of 26

My port is predominantly in internet stocks and nearly 50% in 1999 internet IPOs. Needless to say, my port is up nearly 150% this year. If I sell now I'm taxed at 39% rate. So i am looking for hedging strategies to protect against the inevitable breakdown I expect to occur by 3rd week in Jan. Several observations: 1. My port moves with about double the velocity of the NASDAQ composite index. So on any day that the nazz is up or down 2% my port moves in the same direction by about 4%-5% approximately. 2. I've been looking into shorting NSDQ futures contracts. Margins are ~$22k per contract. The value of a contract is the NSDQ index times $100. (So a nazz close of 3500 means the contract is worth $350,000. Each point move in nazz is worth $100 of contract value.) 3. If my internet stocks portfolio is worth $350,000, then based on the ratio of 2:1 for the average change in value of my portfolio relative to the change in the nazz index, it seems I should short 2 NSDQ contracts (using margin of $44,000 to short the futures) in order to "lock in" the value of my stocks. What do you think of this strategy? Are my assumptions and the math correct?

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