Portfolio Update

One of the points of this blog is that I’ve always found that writing helps me think, and knowing what I think helps me be more decisive (and hopefully make better decisions).
The small portfolio tweak this afternoon, stems from my ponderings on the portfolio and risk captured in the previous post.  I closed one of the general market hedges (SPY put, Dec-10 expiry and $85 strike) and replaced it by finally starting the China-Related bucket (described here and here).  This was done through opening 2 out-of-the money puts in FCX (Jan-11 expiry and $40 strike) and EWA (Oct-10 expiry and $16 strike).  The overall cost after all commissions, was less than 1 basis point (though both positions suffered a loss today, largely bid-ask spread) with the China bucket now representing 30bps of premium (and -1.0% on a delta adjusted basis).

While the capital at risk is unchanged, it is noticeable that while the time horizons are broadly similar, the strike price of both of the new positions is further out-of-the-money.  This reflects both the increased risk in the positions (a crude way of seeing this is that the beta of both FCX and EWA are greater than 1) and my increased belief in the possibility of a China-related unwind.