Hedging is a very integral part of portfolio management and is used virtually everyday by mutual funds, money management firms and hedge funds of all sizes. It is defined as "protecting oneself from losing or failing by a counterbalancing action." Today's issue deals with two plays whose primary function is to hedge my rather large long portfolio. In other words, these plays are designed to counterbalance the longs with short positions. However, thanks to some of the newly designed reverse ETFs, I'm going to go short the market, by actually going long. Here's how.
Ultra Short S&P 500 ProShares (SDS) seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the S&P500 index. In other words, if the S&P500 index were to drop by 5%, SDS would rise by 10%, before fees and expenses. In the real world, you don't exactly get 2 to 1, but anything better than a 1 to 1 ratio is workable. So, by buying SDS, you are actually putting on a double short of the S&P 500, which is largely the market as a whole.
The Ultra Short Dow 30 ProShares (DXD) works the same way. It seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Dow Jones Industrial Index. A buy on DXD is effectively like going short the Dow 30 Index twice.
While these items are not the best long-term vehicles, meaning they are not appropriate as wealth plays, they are essential tools when hedging is needed. If my portfolio drops by a factor of 1, but my hedges go up by a factor close to 2, than I'm partly protected. Add my strategy of selling calls on the long positions at the same time, and it is possible to turn market down turns into big money generating events too. Imagine that. Imagine making money when the market goes up and also raking it in when the market goes down.
Once The Velez Opportunity Report is privatized, I intend to delve deeply into all the strategies that have been making some of the wealthiest families, foundations and firms even wealthier decade, after decade, after decade. There are laws that govern wealth accumulation, and there are strategies that help one use those laws to ones's advantage. My wealth traders will know those laws and the strategies that back them intimately. For now, let's get to the hedge plays. My intended actions are detailed on the two charts below. Enjoy.
The Hedges
