Defensive moves today…

No market goes up in a straight line and a few things over the last few days have made me nervous in the very short run.  When the market open down today, I lost ~5% of the portfolio straight out of the gate but was wise enough to give it some time before I implemented a few hedges.  As the day went on the market did recover and my losses were reduced.  If this would have been a 400-500 point down day, today would have been devastating.

When It was all said and done I ended up buying a lot of puts (protection) using the Feb 18th expiration.  I didn’t want to spend too much money since I am still bullish but I still feel that I’m wasting money.  I have been betting too much on this rally and it was is wise to purchase some protection just in case I am wrong and we start to go down hard and fast.  The plan is to be wrong and let the market run up and buy new puts after I make a large profit or if the market goes down cash out of the puts on the 18th and get ready for the next bull run.

It took a few hours of research and trading today to get what I wanted but I was able to buy appropriate puts in BAC, FXE, BP, RIG, FXI and GLD today.  Total cost was about 1.5% of the portfolio and I hope they all expire worthless as the market continues up.  These instruments won’t stop me from losing money; they will just make it so it’s not a total disaster if a 400-500 point down day were to occur.

Also one of my lottery ticket stocks, Hyperdynamics (HDY), got the day lights kicked out of it today so I bought some shares in the company.  This purchase amounted to ~2% of the portfolio

Between my defensive and HDY purchases I have run my cash position down to a dangerously low position in the neighborhood of ~3%.  For a massive options portfolio, this is a dangerous way to live and I need to put together a liquidation plan if this were ever to get “rough” and margin requirements started to become an issue.  I do have ~20% of the portfolio in Australian dollars and this would be obviously the first place to go to raise “cash” if needed.

I am watching the 50/200 day moving averages in the S&P 500, the so-called “golden cross”.  I still think we have another 10% upside based purely my gut feel and my interpretation of the charts.  Things do pull back and now I should be able to get through any rough patches without fearing any margin calls for the next 3 weeks, hopefully.

The S&P 500 is up 4.7% so far this year and my portfolio is up 17.9%.  This gives the portfolio a very aggressive beta of just over 3.8 times the S&P 500 including cash.  My cash position is down to 3.5% of the portfolio and the margin reserve requirement is down to 14.1% of the portfolio.