Tracker Updates and 2Y Chart

Ok so today the MEGA8s had another decent rally and our Hedged Option in the MEGA8s tracker took a beating…there is a good lesson to be had with this option that we have on. First, the option, is in there as a long position hedge and should lose money as the overall portfolio rallies hard. This hedge is designed to extract the potential premiums the market gives at any one point in time. This is a good lesson in overall risk as even when selling covered calls, you have to be mindful of sentiment, volatility and overall risk of an outsized move.

We have seen a solid move in the Nasdaq and the proper move would be to place a max loss on the short option even if it is a hedge. For instance if we sell an option for $1 and it moves 4 or 5x then we should exit and take the loss and even at that, it could be a 2 or 3x move that does this. This is the art of hedging and risk adversity, everyone is different, and unique, this is why Magnelibra will show you certain option hedges but its not a single fit for everyone.

In our case the MEGA8s hedge is used as a tutorial and today was an important lesson to this very thing. Now we know the short options will move against our overall position and it has cost the outright position and continues to do so. So even though we will most likely keep this till expiry on Friday, the proper move would have been a liquidation on a 3x or 4x move against.

The thought process is that this is a hedge that should work in our favor as time erodes, yet what we don’t want is it to eat at the outright P+L of the long position. This is what it started doing 2 days ago and that is where the portfolio manager or trader needs to decide to liquidate, get flat and not worry about the extra premium protection. None the less we aren’t exposing the MEGA8s to this hedge for P+L purposes but for tutorial purposes like we are giving today. So let’s take a look at the MEGA8s Tracker:

The overall outright position was +$2734 today but the option hedge cost the tracker $5030. So this is where the decision needs to be made, but for us this is a tutorial tracker and one where we created to focus our investment profiles on these large Megacap stocks as we know this is where a lot of the money is being concentrated. The MEGA8s are up $1 Trillion in market cap in just over 2 months!