Earlier today, I bought few ITM puts on HOV, in lieu of shorting it.
I also took advantage of BHP’s small bounce today to buy a few puts on it, the $62.50 strike Jan 11s @$7.40 each, extending my hedge against a drop-off in Chinese iron ore demand (which would adversely impact AYSI). Because I bought these puts as a hedge, and not in lieu of shorting BHP, I used Portfolio Armor to find the optimal puts to hedge against a 20% decline in BHP from here. Note that the optimal puts to hedge against a 20% decline in BHP were ones with a strike price only a few percent lower than BHP’s current market price, not ones with a strike price 20% lower than the current market price. This is the sort of solution I would never have found on my own without the algorithm.
Next time BHP drops, I’ll probably sell a few of my October expiration puts on it to offset the cost of extending my hedge.
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