Seeking Alpha published an article of mine touching on this earlier this week, but the tweet below and the chart that follows it illustrate the tl; dr version. Portfolio Armor was designed to help investors hedge, but other uses for it have emerged. One is as a warning flag for investors in securities with high optimal hedging costs.
I noted that warning for investors in Sears (SHLD) in this tweet on December 18th:
Looks like a red flag for $SHLD longs. MT @portfolioarmor Hedging Bruce Berkowitz stks.co/1avF $AIG $BAC $C $BAM $CIT $BRK.B $JOE
— David Pinsen (@dpinsen) December 18, 2011
And then on Tuesday of this week, SHLD fell out of bed, dropping 27% in one day on news that the company was closing 100+ stores following awful Christmas season sales.
The left side of this chart reminds me of the rock in Close Encounters
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