Ways To Hedge A Market That Depends On The Actions Of Crazy People

 The market has been disrupted by the madness in the Middle East. In particular, the price of oil has caused fluctuations. My gut feeling is that the trouble in the ME will not be over within a couple weeks (sarcasm). There are different ways to hedge against quick pops/drops that the market should continue to experience. Here’s a few ideas:

VIX calls: in or out the money, its doesn’t matter, but they should be long-term to avoid time decay. Wait to get into these until the VIX settles lower again. This is a swing strategy and could last from a week to a month, definitely set a profit-take level.

VIX puts: as of this morning the VIX is abnormally high, result of yesterday’s sell-off. April 15 puts are 10 cents, and look like a quick play while the VIX inevitably resets itself.

DBO: an oil ETF that has been on a roll. May want to wait for a pullback, as the action it saw yesterday was abnormal, a good level to buy is around 28.40. The price of oil should continue to rise for many months for many reasons. Also the fund seems to go up whether the stock market does or not, having a low correlation to an unpredictable market is good for hedging purposes.

http://www.hedgefundlive.com/blog/ways-to-hedge-a-market-that-depends-on-the-actions-of-crazy-people

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