note the main problem with that rydex fund...in 2000 the naz was over 4000, and now it's barely over 2000, yet the fund is worth less now than it was in 2000...therefore, if you owned the naz in 2000 and hedged it with this fund, your stocks would be down over 50%, and your hedge would also have lost money....sure, timing can improve this, but if you are that good at timing, you don't need a hedge anyway
it did pay a capital gain of about 2 bucks in 2002, but this doesn't mitigate much of the above
since the lows at around 1100, the naz has gained about 80%, and the fund has lost about 80%
note that if the naz was to go back to 1100 (very unlikely), the fund would not return to the 120 level, but would likely go from its current 23 price to about 40..for you to sell that fund over 100 bucks again, the naz would have to go to some negative number (i would have to say that is unlikely...lol)
investment math: buy 100 bucks of stock A, which then drops 80%, now worth 20 bucks...stock A now gains 80%, and is then worth 36 bucks
i don't think your hedging ratios are correct, and whereas hedging with options has a fixed cost, your cost of hedging with these funds is unknown....if the market starts higher, your cost increases until you sell the funds...again, if you are that good at timing, just sell your stocks at the highs and save your cash for the lows (good luck) |
