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Wednesday Hedging Lessons – Russell 1,200 Edition

Posted on the 11 February 2015 by Phil's Stock World @philstockworld

SPY  5  MINUTEIt's been an impressive rally.

But, as you can see from Dave Fry's SPY chart, the volume is total BS so here we are, back where we have been 5 times since December, at the top of a range that we never quite punch our way out of

It's been a series of low-volume rallies followed by high-volume sell-offs with bouts of stimulus and Fed-speak talking us off the bottom of our range (S&P 2,000) while it takes nothing but gravity to pull us back from S&P 2,060-85ish.  

On our Big Chart, the NYSE usually gives the game away by never quite getting over the Must Hold line at 11,000, with the broadest market index dragging far behind the others.  Usually, it's the very volatile Russell 2000 that shows us the way near the tops and the bottoms, either bouncing back at 1,160 or failing at 1,200 – which is what we're looking for today:

Wednesday Hedging Lessons – Russell 1,200 Edition

If the rally is real, we should quickly get over 1,210 on the Russell (/TF Futures) but, if not, then 1,200 will not hold and it makes a great short line as 1,160 is $4,000 per contract away.  It may be a bit early, but TZA (ultra-short on the Russell) is often a fun trade at these levels.  Now at $11.68, it's low enough where we don't mind owning it as a long-term hedge so the March $11/13 bull call spread at 0.70, selling the $11 puts for 0.50 is net 0.20 on a $2 spread.  You make 10x your money back if TZA is over $13 in 37 days.

RUT WEEKLY
When you have a 900% upside on a hedge, you don't have to commit a lot of cash to protect your portfolio – that's what we teach you at Philstockworld.  

As noted yesterday, our paired portfolios (LTP and STP) were at $840,000 yesterday morning (up 40%) and they finished the day at $845,000 – up $5,000 (0.5%) on a day when the S&P went up 0.6%.  That means, very simply, that we are balanced just a bit less bullish than the S&P

That means that, if the S&P were to drop…


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