On The (H)edge - Quick Update

20-05-2017 09:13:22

It’s uncanny. We were hypothecating just few days back about an action plan should the markets get shaky. Who knew the canary was just around the corner, ready to sing. Thanks to President Lunatic's FBI drama, VIX jumped by almost 50% on 17th May. This triggered our hedging triggers on May 18th, we hedged the discretionary long only portfolio by going short NIFTY futures and reduced the portfolio beta to approx. 0.7 from 1.2. We will continue to monitor the VIX to adjust the hedges.

As of now though, things seem to head back towards stability, massive buying support from Japanese central bank continues. Despite all of Trump's theatrics and stories emerging from China, deep correction will probably remain elusive, barring geopolitics or some sort of contagion (as in Brazil). I am also of the view that very soon the market will move on to the new theme of "Trump I win, Pence I win more". So, Buy The Dip frenzy continues and with this view, our discretionary portfolio continues to be biased towards long side.

An interesting strategy which I had suggested to someone about a month back is to allocate a small % of portfolio for buying the 2X levered VIX ETF with a two year horizon, potential upside can be 100%(be aware of the holding costs though, given the rollover cost embedded in the structure of these ETF). For this strategy, you will also have Tiger Global as company, who  just disclosed a long VXX position in their latest 13F.