Portfolio Armour

    Posted by Vida on 10th of Aug 2011 at 08:50 am

    This is a bit like shutting the stable door after the horse has bolted... but there was a great poston Slope today about hedging one's portfolio using optimal puts (cheapest possible puts for a specified level of protection). The program referred to is Portfolio Armour and is available on a pretty cheap sub. basis. Just exploring possibilities here...

    Options

    Posted by Tradeanimal on 10th of Aug 2011 at 11:08 am

    A collar trade would achieve the desired result.  You would sell an out of the money call and buy a put at the money or slightly below your purchase price.  Option degradation is an issue along with the complications of closing positions on an exit signal.  A great thought!

    I'm an idiot at options

    Posted by Vida on 10th of Aug 2011 at 11:36 am

    I'm an idiot at options but doesn't a collar limit potential profit? That would really skew the spy system results. I welcome the discussion and other ideas though.

    You would typically sell a

    Posted by Tradeanimal on 10th of Aug 2011 at 12:46 pm

    You would typically sell a call approx 10% or more out from your buy point.  The key in a collar trade is downside protection with a decent upside potential.

    This is actually a great

    Posted by algyros on 10th of Aug 2011 at 09:06 am

    This is actually a great idea.  Using options for insurance won't affect the integrity of the system (since you're not selling or buying outside of signals).  Matt, you might want to consider this rather than using stops.

    Well, of course you'd have

    Posted by Vida on 10th of Aug 2011 at 09:40 am

    Well, of course you'd have to discount the cost of the hedge to the trade and it would definitely affect overall profits and performance. Probably best for use on a discretionary basis to help sleep at night whilst following system signals rigorously... Tongue out

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