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PGJ Holds The Secret

Alright, the emerging market concerns caught me off guard. I confess, I have not been paying close attention for crises. It doesn’t completely matter as I was intent on raising cash early in 2014 anyway. But, I am grateful to others, especially The Fly for his solid piece yesterday. It shook me awake – I was unaware borrowing costs for the rest of the world were spiking like that.

My problem is that I do not want to sell much. I own what I do because I believe in it. I have a 35% cash position, and can raise that back to 50% easily. But any more than that risks me missing out on the exposure; some of which I’ve held for years. It defies the entire purpose of making these investments.

I do have some downside exposure already – TSLA will be obliterated if emerging markets make it to “Contagion Talk” proportions. I still hold what of those puts didn’t expire in January (2/3rds remain of what I initially bought).

My plan is to transition another 1-2% of my account into PGJ puts with a short maturity date, beginning now. That’s a China specific ETF which took a major shock last week. This thing doesn’t turn into a crisis without talk of China; nowhere else is big enough or critical enough to trigger that kind of fear. And you don’t have talk of China without PGJ getting annihilated.

If this turns into a panic, just looking at the Eurozone blowout in ’11 for guidance, it will probably happen within about 6 months from whence the chatter begins (now-ish). Maybe I’m safer with longer execution dates but that costs extra and I can always add in three months if we’re still bobbing.

In the back of my mind, I actually expect the Fed to rush in and save the day somehow. But this will give me a good bit of cover just in case. And these products still look cheap right now.

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