Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.
Looking back at an optimal put hedge on GLD
In Tim's after the close wrap-up video Thursday ("Fire, Walk With Me"), he noted how precious metals had fallen out of bed recently. Below is a look at what happened with an optimal put hedge on the gold-tracking ETF GLD Thursday. Then, a preview of an idea for timing when to roll options. First, though, a quick reminder about optimal puts.
Internet Bubble 2.0 Hedging Update
In his post Thursday on the bursting of Internet Bubble 2.0 ("My $17,000 per month office"), Tim wrote,
I am getting a sense of deja vu about this valley. The bubble has burst, but people haven't really accepted it, and there is still, in some quarters, a sense that things aren't just good, but better than ever.
Sentiments seem to be similarly ebullient in Silicon Alley these days: here's one of the latest local deals, a recipe curation site that just closed a $1.2 million seed round.
The VIX rose 2.82% on Thursday, closing at 34.32. Since the market meltdown of August 5th, it hasn't closed below 30 on any day. Something I've mentioned in previous posts, when the VIX was below 20 (e.g., this one) is that long investors ought to consider hedging when volatility is low, and hedging costs are relatively low as well. Since August 5th, that hasn't been the case.
The table below shows the costs, as of Thursday's close, of hedging a basket of stocks and ETFs against greater-than-20% declines over the next several months, using optimal puts (if there are any optional stocks or ETFs you'd like to see added for future updates, feel free to mention them). First, a reminder about what optimal puts mean in this context, and a step by step example of finding optimal puts for one of the ETFs listed below (GLD).
BAC Again
In a post last week ("Optimal Hedging Costs: A Tell for Stocks"), we mentioned that Bank of America (BAC) had the highest hedging costs in the Dow for most of the last several months, and we speculated about how those high hedging costs might have been a red flag for BAC longs. BAC is up about 28% since then, on news of Warren Buffett's $5 billion preferred stock investment in the Berkshire holding. But as David Weidner noted on Tuesday, Buffett followers who piled into the common stock of Goldman Sachs and General Electric after previous preferred stock investments by Buffett are still under water.
Color, Mania, and Hedging Gold
Below are some thoughts on hedging gold, but before that, a quick aside, prompted by a chapter I read today in The Slope of Hope Bathroom Reader. On p.28 ("Color and Mania in the Valley), Tim mentions the mobile app Color, the creators of which received an astonishing $41 million in venture financing, as an example of the recent bubble in tech. As it happens, one of my daily clicks is the iOS app tracker AppShopper.com, which provides hourly rankings of Apple iOS apps. (Editor's Note – thanks for the book mention, Dave!)
