Chart above shows history of spikes in volatility measured by the ‘implied volatility on the S&P 100’

We are currently allocating a small portion of capital to hedge our small portfolio against market risk. We believe with the coming political election and The Federal Reserve Charmain Benjamin Bernanke removing Quantitative Easing stimulus, markets will become more volatile. This volatility had been identified as a potential risk to the portfolio. Equinox Partners is buying options on the volatility ETF VIXY. These options are being used as a hedge against a market downturn as well as a hedge on our small Swiss Franc position. If the Swiss Franc begins to depreciate against the Euro,as we suspect because of Swiss National Bank intervention, the options hedge will become less valuable. If the Swiss Franc begins to appreciate against the Euro,as we don’t suspect, our hedge will become more valuable.

Advertisements