Sold to close SH

action

Sold 400 shares of SH at $19.925. This closes a portion of a position originally entered on 3/8/16 at $21.29. Total return less commission was ($561.98). Return per share after commission was ($1.40).

rationale

I am increasingly bullish on the medium term outlook for stocks. Primarily, this is due to the expectation of increasing forward earnings. An excellent source for that would be the report published and updated weekly by Yardeni Research, Inc. An up-to-date copy thereof can be obtained here. I retrieved and stored the copy that was current as of this writing, here.

While I expect a benign second half of 2016 for the stock market, I have been cautious on equities during the first half. So, aside from leaving a rather large cash cushion, I also maintained a partial portfolio hedge in the form of a long position in SH, the inverse ETF to SPY. I am happy that it declined, because that means the rest of my portfolio increased.

Over the short term, I expect some downside volatility as event risks from Brexit to future policy announcements by the Fed and the BoJ are converging upon us. So, I don’t want to sell my SH shares all at once. Instead, I decided to liquidate 20% of the original position every time the market would decline by 1% or more. Today’s sale represents the first tranche of those sales (I know, strictly speaking the S&P 500 only declined 0.93%, but the broader NYSE composite fell 1.36%, so I just went for it). Hopefully, by the time I am out of that position the market will be ready to move up decisively.

In addition to my medium term positive outlook on equities, there’s a second reason for me to let go of SH: I want to move towards a more targeted hedging strategy that uses covered puts, covered calls, and naked puts on individual stocks to mitigate risk, rather than shorting the market as a whole.

June 10, 2016 at 2:43pm · SH · sell to close · stocks


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