Comments on: Hedging a Dividend Portfolio

By: Weekly Links: Carnivals & Articles - January 11, 2009 | Dividends Value

Weekly Links: Carnivals & Articles - January 11, 2009 | Dividends Value — Mon, 26 Jan 2009 02:50:45 +0000

[...] The Dividend Guy presented Hedging a Dividend Portfolio [...]

By: The Dividend Guy

The Dividend Guy — Sun, 18 Jan 2009 11:46:58 +0000

Thanks to everyone for the excellent comments on this. Manshu I think your post is very interesting and really highlights the problems with this – you go in the whole quickly and it takes larger and larger market moves to get out of the hole.

In terms of the comments of rebalancing the portfolio daily – the fees and frictional costs would rip your face off.

Thanks again.

By: Manshu

Manshu — Sat, 17 Jan 2009 14:11:17 +0000

Edwin: Thanks for bringing up this great point. In fact – theoretically – you can do that – provided the markets are not so volatile, that a substantial part of your initial investment is wiped out in a day or two.

Second thing is – I don’t think a person who is not glued to his brokerage account will be able to do this.

Third thing is – personally – I think an – out of the money put option – for a far off date on the main index will give you the same safety, without so much exposure.

What do you think?

Also, I was so interested in the subject, that I wrote about it myself:
http://www.onemint.com/2009/01/15/do-not-use-a-leveraged-etf-for-hedging/

By: Do not use a Leveraged ETF for Hedging | OneMint

Do not use a Leveraged ETF for Hedging | OneMint — Thu, 15 Jan 2009 11:42:22 +0000

[...] I came across this interesting question in The Dividend Guy’s website – Could you hold 75% of your portfolio in stocks, and buy 3X Leverage Funds that short the [...]

By: Edwin

Edwin — Thu, 15 Jan 2009 05:58:39 +0000

Manshu: What if you are able to rebalance your portfolio daily? (Assume no incremental commission/fees)