We're back to shorting the Russell Futures (/TF) below the 1,370 line (tight stops above) and we expect a rising Dollar (already 102.50) to put downward pressure on the indexes as well as commodities but it's going to be wild and we probably won't be playing those. If you want an option play to hedge with the Russell, I suggest the following using the Ultra-Short ETF (TZA):
- Buy 20 TZA March $18 calls for $2.25 ($4,500)
- Sell 20 TZA March $22 calls for $1 ($2,000)
- Sell 5 TASR 2019 $20 puts for $3.20 ($1,600)
The net of the spread is $900 on the $8,000 spread that's $2,500 in the money at $19.25 so TZA has to fall 6.4% for you to lose money on the March spread. We offset the cost by promising to buy 500 shares of Taser (TASR) (our Stock of the Decade) for $20, which is $4.63 (19%) off the current price but you can substitute any stock you REALLY want to own if it gets cheaper.
If TZA hits $22, you collect $8,000 and that's a $7,100 net profit (788% return on cash, assuming the puts expire worthless), which makes it an ideal hedge for a $100,000 portfolio and we will add it to our Options Opportunity Portfolio today.
It's much easier to add a hedge than to liquidate positions every time you are nervous that the President-Elect will be indicted for something or other (will probably happen a lot in the coming years) and our Options Opportunity Portfolio, which we keep for our friends at Seeking Alpha, is up $7,065 (7%) since our Jan 1st Review – no wonder we don't want to let go of these positions if we don't have to.
Think of a hedge as an insurance policy that you HOPE you lose money on.
