Sudden Fall in Equities soon !? I can Sense and Feel it…Better Hedge Equities Right away

As Wall Street slaps Washington,Dalal Street will damn Delhi too….It’s been perceived as a STIMU-LIE Package in both countries

Yesterday the DOW teetered more towards the Edge clsoing at 7466,the lowest in six years

It’s just past 2.30 pm in Mumbai and the Sensex and Nifty are struggling to stay over 8800 and 2700 respectively

I can sense and feel that soon,the Dow may just plunge 500 to 1000 points in a Day soon…we will follow as we too will test October 2008 Lows

This Intuition or gut feel is strongly supported by weakening macros fundamentals in USA particularly and the world over in general…The IMF has already stated that it expects many more countries to come to it for Bail-Outs

I was watching the classic Movie ‘Sea Biscuit’ last night on Star Movies…What a parrellel !…The Movie is about a Champion Horse and Horse Racing and is set in the times when America was devastated by the Depression of 1929…The Wealthy became Poor,literally overnight,and lost their Homes and All their Assets….they took to the Highways and settled in poorer conditions….It’s happening allover again,I daresay ! 

If disinclined to sell off equities at these low levels,atleast exercise prudence to fully hedge your equity portfolio right away

You can do this in Three Ways

  • Sell off All or Part of Equities…Hard Call at these Low levels already as Heavy Loss sitting in Portfolios…but it will give you Capital to Grasp Greater Opportunities ahead
  • by committing appropriate additional Funds and Investing in negatively or less positively correlated Investments to Equity…Silver and Gold as Alternative Investments run at the top of my mind  or
  • Go Short in Index or Specific Stock Futures or buy Protected Index or Stock Puts…by shorting Futures ,you are locking in the current value of your equity portfolio…so if the Market fall,so will the value of your portfolio…but this fall will be offset by the gains you make on your Futures Contracts that you shorted…..by buying Protected Puts,you pay the Premium to insure your Equity Portfolio from any Fall,while keeping the upside potential alive…this would seem the best strategy,if you need protection from significant downside,but don’t really have such an intense feeling or sense like I do that this will happen suddenly and soon…It is better to pay a 2%-3% Premium to protect from a 15% to 20% potential downside from here…The OPTIDX Nifty PE with Strike Level of 2700 and Market lot of 50 has a premium of Rs 47 and Rs 142 respectively for Feb 26,2009 and March 26,2009 contracts…You’ll be paying Rs 2350, that’s under 2% costs, on a contract Value of Rs 135000 for a week’s hedge and a high Rs 7100,under 5%  cost, for a month’s hedge…the underlying Nifty is 2717 and it’s just past 2.30 pm

Watch out for a Sudden Big Fall in US Equities soon…It will mirror on Indian Equities the next Day

You may not be inclined to sell Equities or commit further funds even to Gold….so then atleast Hedge your Equities to protect thier Current Value as I see some more quick decimation ahead.

Or if you are a passive Investor and feel any short term decimation in equities will reverse in the longer term and Equities will recover,then you possibly will do just nothing…no hedging or selling  of equities…you are not perturbed with another 15% to 20% decline in Equity values…..then I have only this query for you…. how ‘Long’ do you define ‘Long’ term !…The way it looks now ‘Long’ looks really,really  ‘Long’ and far far away !  

I would say atleast hedge.

2 thoughts on “Sudden Fall in Equities soon !? I can Sense and Feel it…Better Hedge Equities Right away

Leave a Reply

Your email address will not be published. Required fields are marked *