Wednesday, October 25, 2017

S&P 500 Put, Stop Loss Triggers, Recent Adds (SJM)

So, how to hedge a big IRA portfolio?  Or should you bother if you are still 7 years away from your retirement age goal?  This has been on my mind lately.


  • The S&P500 PE is up over 25 lately, at historically high levels.  We haven't had a correction of 3% or more in nearly a year (11.5 months), and a 5% correction since well before that (18 months)
  • I don't own the S&P500 ETF in my IRA, so that's good.
  • I tend to buy undervalued stocks, and sell overvalued stocks, so that's good.
  • I do own a handful of names that are pretty overvalued, but continue to climb, so I hesitate to sell these, and they've grown large in the portfolio  (GD, JNJ, MO, PM, JPM, PSX, ABBV, CVX), which is bad if a correction comes soon...
Here are the measures I've taken to be a bit more prudent in the short run:
  • I bought an S&P put slightly out of the money at 2540, with an expiration of December 29, 2017.
    • This is liking having a short position for $250,000 worth of S&P "stock."  If the market drops 10%, this put would gain around $25,000 in value.
    • The cost for this put was around $4200
    • If the market remains positive, the put will expire worthless, and I'll have flushed $4200
    • As I write this, the market is down around 0.75% today, the put is up 40% today, slightly above the price where I purchased it....
  • For the stocks mentioned above that are overvalued, I put in stop loss orders for several (JNJ, GD, CVX so far)
    • I placed limit orders for a 3% trailing stop loss vs. last price.
    • If any of these drops 3%, the order becomes a limit at the price that's 3% below last closing price.  
    • The orders are only to trim down to a "full" position in the portfolio
    • As of this blog post, GD has triggered (did so on 10-19-17) at a price of $207.75, which is above today's price, so that was good.
Shifting gears, I like SJM again today, and have added another chunk.  FASTGraph below:


Regards,

Chump

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