July 29, 2011 – Why I Closed Half The Hedge

Mostly because I felt like it. I cannot predict where price is going to go so I never know when the best time is to close it. Back on 6/15 the hedge was up around $5,379. I should’ve closed it then. But I didn’t know if it was going to keep going up or down or what. Plus, I moved and we had those big up days in a row and my SPY position was way up in a matter of days. There’s no way of knowing how big of swings price is going to make.

I’d rather close it for a bit of profit than for a loss.

I mean, it really doesn’t matter, though. I will end this trade net profitable no matter where price goes and no matter when I close the hedge, so any positive hedge profit is extra bottom line profit in the end.

I’m thinking actually maybe I should make my next buy point at the 100 line of where I originally drew the first fib lines. I’d be buying some soon, and it would lower my average close sooner than waiting to see if price hits $124.10 where my next buy line is. And then I could potentially lower the profit target cuz who knows when price is going to get back up to $137 where my current sell area is? Or maybe I should just ask one of those people who claims to be able to predict price.


If I were to buy 1,400 @ $128.50, that would put my average cost at around $130.86. So then I could make the target profit 133 or so for a net of $6,848 from the SPY, plus the $1,223 from the hedge, plus whatever is left of the hedge, plus the $1,130 dividend.

Of course, if I do that, then SPY will probably go to 137 the following day. Cuz that’s how it works

July 29, 2011


SPY: -$6,066
hedge: $1,360.68

-$4,705.32 (unrealized)
+$1,223.60 (realized)

That doesn’t include the $1,130 or so dividend that is going to be paid for my SPY position soon.

Next long entry point is still $124.10.

Why Hedge Instead of Just Reducing Position Size?

So I can cash out in both directions. I can’t predict price.

Right now I’m just in a less than optimal place in that I’m still in the short position while the long position is in the money. I should’ve closed the short position when I was up around $5,000, but I ended up moving and being away from my computer for a few days while we had a rally. lol.

Mentally, I’m not treating it as a directional bet. I’m treating it as two separate things.

Also, I don’t usually enter both positions at the same time, which would make adjusting position size more logical (eg. instead of going long 2 and short 1, just go long 1).

I understand your point, however.

And since I can’t predict direction I have no way of knowing where price is going to go, or for how long. The hedge is basically a “bonus,” whether it’s an extra $100 or $5,000. even if I get it wrong and never close out the hedge for a profit (because price is random), I’m still net profitable for the trade.

I get paid more SPY dividend this way, too, because I’m holding larger SPY positions.