Quote:
Originally Posted by BCI23
The yield curve recently inverted which has been a strong predictor of recessions over the last 60+ years. I’m not a big macro bettor but I do like the idea of buying insurance/lottery tickets to protect my portfolio from unpredictable events or economic declines. I’m mostly trying to think about bets to put .5% to 1.5% of my portfolio into which could pay off huge in recession scenarios. My list of ideas is pretty boring but curious if anyone has thought of more creative hedges with huge payoffs in downside scenarios.
My plain vanilla ideas:
Long VIX, calls on VIX
20% out of the money puts on SPY/Russell 200/Dow Jones
Puts on high yield debt
OTM calls on gold
Puts on Treasuries
Anyone got creative ideas?
VIX went from $11 to $87
SPY dropped 25%, IWM or IWC fell more, puts would have crushed.
Puts on high yield would have also worked well.
Gold has performed well since summer when fed started QE but about flat since March 1. Gold story probably plays out over next few years.
Of course i didn't have any of these hedges on heading into March. The red flags were definitely here, inverted yield curve, fed restarting QE, funding stresses in the repo market last fall, and then the virus comes in Dec/Jan/Feb. Lots of smoke, all obvious in hindsight, oh well.