|
PureBytes Links
Trading Reference Links
|
At 06:34 PM 7/6/98 -0400, Bob Fulks wrote:
>At 5:14 PM -0400 7/6/98, Bill Masi wrote:
>
>>I'm definitely feeling like I need some insurance. Fire and flood, auto
>>and health are all covered and with today's AMZN close at 140, it seems
>>time for a nice policy of portfolio insurance.
>>
>>Especially since I oversee a couple of portfolios that have a cost basis as
>>far back as the 1940's and which can't be liquidated.
>>
>>I'd like to buy a handful of LEAP puts that would work more-or-less in
>>tandem with the portfolios. (An x% loss in the equities to be offset by a
>>like gain in the options.)
>>
>>You'd think a broker would have this kind of calculation at hand, but none
>>of the ones I deal with, wirehouses to Schwab, can come up with a number
>>that makes sense.
>>
>>Can anyone on the list offer a formula - or a reference to more info - that
>>shows how many SPX options, at what strike might cover each $ 100,000 of
>>equity value?
>
>
>Hussman Econometrics (http://www.concentric.net/~hussman/) is now
>recommending one Sep 98 OEX 550 Put for each $26,000 of portfolio value.
>According to my tube, they closed today at 11.75. So 4 would cost you about
>$4,800 or 5% of the portfolio value - a bit steeper than fire insurance!
>
>He tends to roll them about every month or two at some incremental cost.
>
>An article in today's Barrons (page MW17) discusses how overpriced OEX puts
>are now.
>
>You can probably scale this to SPX puts if you prefer these.
>
>I have a spreadsheet somewhere that calculates the price vs. OEX value vs.
>time if you get desperate.
>
>Bob Fulks
>
www.cboe.com (Chicago Board Options Exchange) has a whole section on spx
and other leaps, how to use them and how to calculate the portfolio
equivalence for hedging purposes.
I tend to believe that spx leaps would be a better value, being so far
from expiration so that their time decay is much less than regular index
options. Am I wrong? (I used to subscribe to Hussman's newsletter and
followed his strategies, which I think are sound. At one time he was
recommending the use of synthetic futures positions to hedge the
portfolio,ie. buy a put sell a call at the same strike and expiration. This
was not allowed in many people's accounts. Just buying the put can be
pretty expensive in terms of time-decay.)
David Cicia
|