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Subject:  Re: Building an effective hedge Date:  3/25/2013  1:27 PM
Author:  globalist2013 Number:  34845 of 35576

Are there any distressed bond investors... that actively hedge their positions using equity put options?


I experimented with this technique last year, and I decided it wasn't worth the difficulties, the costs, the uncertainties. I used OTM LEAPS. Also, I simply went short the common of the issuer whose debt I owned. I broke even on my options (or a tad to the good) and made some decent money on the shorts. The hassle with trying to protect questionable positions is that you shouldn't be in them in the first place. You're just throwing good money after bad.

Step back and think about 'investing'. Not just bonds, but all of investing. You know from the get-go that you're going to suffer losses. That's both unavoidable and no biggie. Losses are merely a cost of doing business. So the question to be answered is "What's the most effective way to manage them?" Per Taleb, two possibilities suggest themselves: 'robustness' and 'anti-fragility'. Most investors think in terms of trying to buy "insurance". Bu