So far a fantastic month for the portfolio. It’s been volatile but we’re doing very well despite all of that and having ended up right at about 205 at the time of this writing. \u00a0As I wrote a week or so ago:<\/p>\n
Markets have been quite volatile since the start of the new year. The dow has had several 200 +\/- points days. Price discovery amidst all of the uncertainty. What effect does low oil have on the economy? What effect does an extremely strong dollar have? Will companies report lower earnings due to the lower euro? \u00a0There is the potential greek exit, the potential QE from ECB on the 22nd. Just a boat load of uncertainty and markets hate uncertainty. \u00a0 Through out all of the swings from 208 to 198 my overall portfolio moves about 2% up or down. \u00a0This is why I\u2019ve constructed things the way I have. Most of the 2% movement comes from the on\/off volatility in the options of the SPY\/TLT pair trade. \u00a0If the market moves slowly down my balance barely changes but if there is a quick jolt to the same place and VIX goes up drastically, I see the balance change due to heavy pricing of the spy options.<\/em><\/p>\n To summarize:<\/p>\n Protector (Alpha + Standard): \u00a0This is the all-weather portfolio. It’s a completely hedged equity portfolio. We purchase year-out ATM spy puts in the amount to 100% insure the equity and then we purchase about 30-40% in additional puts of which we sell against on a short term basis with enough extrinsic value to pay off the hedge over the course of 1 year. In essence, we purchase 140% 1-year out ATM puts, sell 40% short term puts with enough extrinsic value on a weekly basis (approx 65c) to cover the entire cost of the 140% long puts. It’s been backtested to death and works well with a very very low max draw down. A great strategy that can take on a little leverage. In essence, our portfolio is completely protected and performs in any bear markets though does\u00a0slightly under perform in a prolonged bull market. Essentially, It performs in all market types but does have challenges in an on-going whip saw environment. The way I sell the puts is quite complicated and combats the whip saw weakness. This method took a few years to fine tune. All the complication is in how the weekly puts are sold.<\/p>\n We do a split where we have the regular old market via RSP and another half of alpha generating equities that do have correlation to the regular market so as to be protected in any bear market. The\u00a0alpha generating equities is where I have some “secret sauce” ways of finding alpha. In general the alpha comes from some momentum analyis, quantitative analysis (mechanical trading) and even some 13F cloning. Our current portfolio is neutral to slightly up for January.<\/p>\n Momentum: This component rotates through 15 ETFs (bonds, equities, treasuries, some commodities and REITs) by selecting the top 3 which are above the 200 DMA and rotating on a monthly basis. It has a max draw down of 10-15% and expected to return 15-18% a year. It naturally avoids bear markets by selecting non-equity ETFs like TLT and VNQ. We’re currently in TLT, VNQ, LQD. \u00a0Those three have provided a 6.8% return in January alone. \u00a0A perfect additional hedge to our protector portfolio.<\/p>\n SPY\/TLT pair trade: This is an option based strategy where we do a pair trade of debit spreads of SPY and TLT which are negatively correlated. \u00a0We’re doing very well in this for the current month. Up about 20%. \u00a0This is the highest variance portion of the portfolio and does have a smaller allocation.<\/p>\n Earnings Volatility trades: \u00a0We’ve done a few earnings volatility trades this month (GOOG, NFLX, FB, MSFT, BABA). \u00a0These are volatility based trades and are completely unrelated to any of the above.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":"