No. of Recommendations: 1
Anyone has view in what to short in this market? Sector or special etfs?
I believe that when Jim Mungofitch put together his RSP lazy-man system, and used the 99-day no-new-high signal to inform, when the signal was unfavorable, he proposed shorting the Russell 2000. So you could short IWM, or purchase RWM (-1x), TWM (-2x), or SRTY (-3x). For Futures, the R2000 micro-mini (at IBKR) is M2K (~$12,600) or RTY (~$126,000) per contract. At Schwab those contracts use a hash in front of them, i.e. /M2K & /RTY.
Dave
No. of Recommendations: 2
WHY do you want to short for hedging?
A) Is it because your portfolio is regarding cap weight(!) more or less equally spread out over many diverse stocks? So that you want to hedge really the whole market? => See DragonTales reply.
B) Or are you mainly S&P/Nasdaq indexed and afraid the very richly valued Mag7 with their huge cap overweight might crash? Then why not simply shorting them by buying puts on them (e.g. long running LEAPS)?
C) Or is it because as many here you are far overweight Berkshire (or - as for me and others(?) - itīs even your only stock), and are afraid that if the market goes down your Berkshire will be dragged down too? Then why not simply buying Berkshire puts (LEAPS)?
In other words: Hedging that which you actually own, as that inherently is what hedging is about: Specific insurance for your specific assets.
If you donīt actually mean "hedging" but instead "profiting" from the market going down, without making predictions about what might go down more: Thatīs what Jim probably meant when mentioning the Russell 2000. Thatīs A) --- though I personally would currently put even then more weight on shorting the Mag7, on B).
P.S.: Personally since 1.5 years I repeatedly buy and sell again Berkshire puts. My reasons for doing so are partly but not fully in line with the above. I am not afraid the market goes down, but actually hope for that. To profit from it by shorting, to profit from it from a certain guy in "my" company tap dancing because he (respectively Abel) can finally put the cash to work, and to profit from it by buying back with my own cash lots of Berkshire shares I sold 1 year ago.
My thinking: Berkshire is the only company I can reliably assess whether itīs cheap or expensive. I buy puts when itīs expensive and sell them again when itīs less so. Because of itīs "volatility" I repeatedly make good money that way (as somebody shortly ago kind of laughed when I mentioned "volatile" in the context of Berkshire: Going again and again to $505, from there falling back to $490, only to rise to $500 again, and all of that in just a few days, for me is "volatility" for such a boring stock --- definitely enough for me.
That was the profiting part. Regarding the hedging: I never sell all Berkshire puts. Since those 1.5 years I always own enough of them that if the market finally goes really down (20%, 30%, 40% ...) and Berkshire with it, that they then more or less compensate what my Berkshire shares will lose in price.
