if you short spy's or the s&p futures, you will essentially track the large cap market and your success will depend on your ability to pick stocks that will outperform the s&p. i'm not currently very confident of my ability to do this after the beating i've taken in the drive makers over the past month or so.
the trouble with index option puts is that continuous rolling of expiring oex options is expensive. tho oex options are very liquid, transaction costs - slippage and commissions - are very hi, and the puts are pricey since a lot of money managers use them to hedge themselves short-term.
one area that should be looked at is s&p index leaps. the series that is most appropriate for a longterm hedge is the dec99 90's, 92.5's and 95's, symbols are lsxxr, lsxxy and lsxxs respectively, ask quotes per the cboe site today are 7 3/4, 8 5/8 and 9 1/2. (s&p leaps are 1/10 the index, which closed at 914, or 91.4 for purposes of the leaps.)
see
webservices.pcquote.com
it seems to me that the ability to hedge a $91,400 portfolio for over two years at a cost of $8,625 is pretty cheap insurance - so cheap that i must be doing something wrong. but just on the numbers it appears that giving up a little over 4% of upside per annum gives you absolute portfolio protection, and no more sleepless nights.
would any one care to comment?
tom |
