No. of Recommendations: 1
My disaster hedges are simpler than that: I buy out of the money index put options.
I prefer IWM versus SPY these days, since the giant tech/data firms are so insanely profitable and entrenched. The weakness seems concentrated in the smaller firms.


Sounds similar to mine, except the name. Mark Spitznagel (www.universa.net/riskmitigation.html) will point out that abrupt corrections are far more common than option prices often reflect. Admittedly, bleeding hedge money is not fun during good times. A disaster to me is when my house burns down. Volatile corrections are more common.

I started out using SPY, then moved over XLF for the same reasons. Pretty sure I looked at IWM at the time, but I guess looking at volume and correction volatility I went with XLF puts. (Being recently impressed with some of our short screens I decided to add some puts from one of those pics. Unfortunately those pics tend to be biotech firms, which are not correcting as much for obvious reasons.)

I believe Spitznagel's model is to own puts that will deliver a 10x return on corrections of >15%. To keep my numbers small, I decided to go much further out of the money than he does. At the moment my return is 5x with XLF down 37% from the peak for puts I put on Nov 5, 2019. So I guess that is something of a fail, though these are pretty inexpensive out of the money options expiring Jan 2022. They were a bit higher when the VIX was near 80, and my plan to be selling is in a next leg down.

To your point, I need a pre-decided trigger to close and yes, shopping for deals is next. :-)
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