Sunday, November 18, 2012

Preparing the Model Portfolio for the Fiscal Cliff

Now that we've discussed what the Fiscal Cliff is what changes, if any, do I need to make for the Model Portfolio...

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

There is something else that the SPY Put option brings to the account beyond the economic reasons I mention in the video. Peace of mind. While I do not think it will happen, we can have a complete meltdown and I will come out ahead.
We can have a rise in the markets and my share price will rise so I will come out ahead.
Combined with the Investing account's dividends of bringing in income... Its as close to as win-win as you can get.

This mentality is what I think retail investors really needs to get down to doing. Getting away from the buy low sell high as their entire strategy.

Disclaimer: The investments and trades in my videos and blog entries are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.


  1. Hi Pulling,

    Quick question about the put option. You mention theta decay as a risk, but you did not mention delta as a risk. So for example, if the SPY jumps higher, the option will lose value quickly with a delta of -.47. Are you concerned about the potential for that move higher? Do you have a stop loss on the option if the market were to rally?

  2. And as a follow up to my question, what are your thoughts about the implied volatility priced into the option? We just saw a fairly sharp drop in equities, which may have increased the implied volatility, if the market does calm down, there could be loss in value just because of the decrease in IV.

    1. 2 for 2. If things level off then I would expect volatility to drop and some of the option price.

  3. You are quite right about the delta. I mentioned theta as it will be burning the option value no matter what. Delta might be a gain or loss. If I lose on the option then I should be gaining with the Investing account's positions. I'm expecting to get half the option price back if it were to rise enough for me to be comfortable that a Fiscal cliff crisis has been averted.