Are the Stock Ratios the way to go?
I think it’s interesting that the investment community is typically resistant to capturing or hedging any portion of an investor’s profitable stock portfolio in the futures market. That seems rather reckless to me, and I’m a futures broker! I view the stock market through a different lens. I think it’s great to be bullish on the stock market, but I think it’s also important to anticipate and plan for any potential market corrections. There’s no logical reason against attempting to stabilize your portfolio’s yield curve by trying to mitigate or minimize draw-downs. With this in mind, I present the chart above. This is a weekly spread chart of an Emini Nasdaq index versus the Emini S&P stock market index. As you can see, the “tech sector” has been out gaining the “large cap” sector since 2008. This is a very dynamic uptrend. We can argue why this has happened, but I’d prefer to take it at face value as an indicator of projected resistance or value points to sell and/or buy. Look at the channel lines I’ve drawn on the chart. These are simply my interpretation of historical price tendencies. If the geometry continues to hold true, we should be fading or selling this extreme in one way or another. The most correlated strategy to this specific chart would be a ratio spread of selling 5 March Emini Nasdaq and buying 2 March Emini S&P. The ratio is needed to balance the exposure of the two distinct markets. Yes, I’m suggesting picking a temporary top in the equity markets! I’m not advocating jumping off a cliff. I’m not suggesting you sell any portion of your actual stock portfolio. I’m suggesting you consider initiating a hedge strategy that would capture a portion of a potential sell off or downward correction in the stock market’s bullish trend. Please call us 1-800-786-4475 or email me at Steve@efggrp.com to discuss the specific risk/reward targets of this, or other similar strategies.
The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.