That article quoted both a bullish case and a bearish case for gold, originally presented in an FT article Saturday. One gold bug, angry that I included a case against gold in my article, noted that my article was a way of promoting Portfolio Armor, and attacked me as a “tout/troll”.

That part of his comment was excised by the Seeking Alpha editors, but they kept my response (which you can see there), in which I acknowledged that part of the reason authors submit articles to Seeking Alpha is to gain exposure for their businesses, and Seeking Alpha allows that, provided the articles meet their editorial standards and the business is mentioned in a way that isn’t overly promotional.

I was pleasantly surprised to see that a couple of commenters groked that one could “tout” one’s business and still offer useful info. One wrote (replying to the commenter who called me a tout/troll),

I know what you’re saying, but honestly this is a pretty useful article. I appreciate the useful information on how to efficiently and effectively hedge positions. I think that the author has done a nice job of providing valuable information in the context of promoting his app, and I have no problem with that. I wish I had used a strategy like this when silver was in the high $40’s and gold was around $1900.

Another wrote,

David, thank you for offering your suggestions about the offsetting of risk.

The fact that you offer your advice from a position as a professional and an entrepreneur has no bearing on its validity as you are rightly forthcoming about your interests.

So, that was nice to see. Sunday also turned out to be the best day for Portfolio Armor business in the a couple of months (certainly better than April, which was pretty slow with me out of action).

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Cheap to hedge $GLD against a greater than 20% drop between now & September – 0.8%. Longs should consider it. twitter.com/PortfolioArmor…

— Portfolio Armor (@PortfolioArmor) February 29, 2012

Hedging costs had jumped 46% for GLD by the end of the day, as we noted in this Seeking Alpha article.

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Last week, we noted the high optimal hedging cost for Zynga could be a warning:

Steep hedging cost for $ZNGA (compare to last tweet re $QQQ). A red flag for Zynga longs? twitter.com/PortfolioArmor…

— Portfolio Armor (@PortfolioArmor) February 9, 2012

This was the “last tweet re $QQQ” referred to in the tweet above.

Zynga tanked almost 18% today after posting a net loss of $435 million, on a $510 million charge associated with stock-based compensation issued to its employees.

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The plan is for this post to be the first in a weekly series. If you’re not familiar with Twitter, click on the clickable stuff in the embedded tweets below, and you’ll get the idea.

I’m humbled by the work of all the charities I have thrown out envelopes from.

— Gary Janetti (@GaryJanetti) February 5, 2012

After 30 years of hustling, this guy turned $700 into billions. How he’d allocate a $1 million portfolio now: stks.co/2Gxf $$

— David Pinsen (@dpinsen) February 7, 2012

Lucy Kellaway rips $UBS on a particularly egregious bit of its corporate b.s.: ft.com/cms/s/0/bae01b…

— David Pinsen (@dpinsen) February 7, 2012

Hyperbole is worse than Hitler.

— Andy Levy (@andylevy) February 7, 2012

Facebook graffiti artist might be richer than @mittromney. Stock v. cash: “Likes to gamble”; had faith in @sparker. finance.yahoo.com/news/facebook-… $FB

— David Pinsen (@dpinsen) February 8, 2012

BREAKING: Ann Romney tells heckler, “My husband can’t f@*king throw the ball and catch it at the same time!”

— Philip Klein (@philipaklein) February 8, 2012

What I am told the female students at Cal Tech say of their situation: “The odds are good, but the goods are odd.” Love it.

— Charles Murray (@charlesmurray) February 10, 2012

.@nytimeskrugman is a uniter! Here, 2 nemeses unite in disagreement w/ him: RT @bill_easterly: I agree with Jeff Sachs bloom.bg/yMvu45

— David Pinsen (@dpinsen) February 10, 2012

@dpinsen I hate that. Manufacturing is key. Gotta fucking make something, not just sell worthless paper for Chinese poisoned toys.

— Charlie Crystle (@Ccrystle) February 10, 2012

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In a post Wednesday morning (“High-Yield Long Idea Idea Continues Strong”), Tim Knight noted the continued strong performance of his long position in the SPDR Barclays High Yield Bond ETF JNK. Back in August, I looked at the cost of hedging JNK, but I thought it might be worth taking another look after seeing Tim’s post. It turns out JNK is pretty inexpensive to hedge right now. The table below shows the cost, as of Wednesday’s close, of hedging it against a greater-than-20% drop over the next several months.

A Comparison

For comparison purposes, I’ve added six of the most actively traded ETFs to the table. First, a reminder about what optimal puts are, and a note about decline thresholds; then, a screen capture showing the optimal puts to hedge JNK.

About Optimal Puts

Optimal puts are the ones that will give you the level of protection you want at the lowest possible cost. Portfolio Armor (available on the web and as an Apple iOS app) uses an algorithm developed by a finance Ph.D. to sort through and analyze all of the available puts for your position, scanning for the optimal ones.

Decline Thresholds

In this context, “threshold” refers to the maximum decline you are willing to risk in the value of your position in a security. You can enter any percentage you like for a decline threshold when scanning for optimal puts (the higher the percentage though, the greater the chance you will find optimal puts for your position). I have used 20% thresholds for each of the securities below.

The Optimal Puts for JNK

Below is a screen capture showing the optimal put option contract to buy to hedge 100 shares of JNK against a greater-than-20% drop between now and June 15th. A note about these optimal put options and their cost: to be conservative, Portfolio Armor calculated the cost based on the ask price of the optimal puts. In practice, an investor can often purchase puts for a lower price, i.e., some price between the bid and the ask (the same is true of the other names in the table below).

Hedging Costs as of Wednesday’s Close

The data below is as of Wednesday’s close, and is presented as percentages of position values.

*Based on optimal puts expiring in June

**Based on optimal puts expiring in July

***Based on optimal puts expiring in August

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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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A booth at the Skylark Diner

In a post this fall (“New Features and Things to Come”), I mentioned a few projects that were in the works for Portfolio Armor:

Things to come

A quant on the Portfolio Armor team, a post doctoral fellow at Princeton University, is conducting R&D on the first two features below now. I hope to have them added by the end of this quarter, and the third feature sometime in the first quarter of next year.

• Optimal call options to hedge short positions.
• Optimal collars to hedge long positions, while offsetting the cost of protective puts.
• Dynamic, optimized when-to-sell alerts for call and put options.

All of those features will be as easy to use as the rest of Portfolio Armor, with all the calculations kept in the background, as usual. But if you like math, and you want a sneak peak at the thinking behind the third feature, here’s an excerpt from our Princeton quant’s e-mail about his epiphany about this.

It turned out that our quant ran into a couple of conceptual stumbling blocks while conducting R&D on the second one of those features, optimal collars. After exchanging a series of emails on it, I suggested we meet for lunch at the Skylark Diner, which we did yesterday. Using some non-academic pragmatism, I helped him surmount the conceptual stumbling blocks. He left with a blueprint for how to tackle the problem sketched out over a few legal pad pages.

Meeting in person: still the most effective social medium.

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