Bustle in your hedgerow: More about hedges and cash

If there’s a bustle in your hedgerow, don’t be alarmed now
It’s just a spring clean for the May queen
Yes, there are two paths you can go by, but in the long run
There’s still time to change the road you’re on
And it makes me wonder – Led Zeppelin

If there’s a bustle in your “hedges”…ugh. Did I just try to use Stairway to Heaven lyrics by playing of a “hedgerow” pun? Yes, I guess I did and my only defense is that it’ a holiday and I came into the office to do some work and happened to think of that pun when I was trying to title this post. That said, those words about how there’s still time to change the road you’re on is so important to traders and investors.

Happy Labor Day everybody. I popped my head into the Trading With Cody Chat Room today and boy there are some good subscriber discussions that were going on over the weekend.  I’m in the Chat Room most weekdays (and some holidays like today!) answering questions or chatting up the subscribers.

Let’s do this week’s official Trading With Cody Live Q&A Chat tomorrow (Tuesday) morning at 9am ET. I’ll also take questions over the phone on our conference call line (Dial-in: 641-715-0700 Access Code: 709981) or just hit reply on this email to send us your question.

Here’s a valuable discussion from four different subscribers from over the weekend with some new Cody Comments under most of them.

Subscriber Steve: Puts don’t only become valuable in a crash, but also in a correction. I would not be surprised if Cody’s thesis of a 5-7% correction in the near term occurs. I would be elated if the market continues to wander upward, but I’m glad to have these hedges. I don’t say that lightly, because frankly I hate losing money on hedges.

Cody Comments: Steve succinctly sums up how most of us should(?) feel if you have bought puts recently: “I would be elated if the market continues to wander upward, but I’m glad to have these hedges. I don’t say that lightly, because frankly I hate losing money on hedges.”

Subscriber Ric: Hi Steve, can I ask you how much cash % wise you have? We’ve discussed it few months back and wondered if, a part for put protection, did you also raise your cash level as well or left it where it was couple of months ago? Thanks in advance.

Subscriber Steve. Hi, Ric. I probably have less than 15% at this point. I would like to have it around 20-25% currently, but some of the recent Cody purchases have depleted some of my cash.

Cody Comments: Easy does it. There’s no “right” answer for anybody’s personal cash positions especially when trying to compare you own portfolio of life/money/stocks/assets with anybody’s else’s. I especially like Ric’s question underscoring that you should probably have more percentage cash right now than you did two months ago (and especially compared to where it was three years ago in most people’s cases).

Subscriber Carl: Steve, I feel the same way. One way of feeling better is to keep money out of the market to invest when a real correction occurs. That way you avoid the anxiety of the put is going to zero. I don’t view puts as a hedge because I can never get myself to risk enough in the put. I am already committing the sin of taking money out of my investment account to pay bills along the way.

Subscriber Steve: Carl, I don’t think removing money from an investment account is a sin. Removing money from your retirement accounts to pay bills is a huge no-no. On the other hand, if you are having to sell securities from your brokerage account for your monthly cash flow, that could be a problem if you have to sell a position at a loss in order to maintain your cash flow, so hopefully you don’t run into having to sell a long position at a loss to maintain cash flow.

Cody Comments: Steve makes great points there once again.

Subscriber Steve: Geb, I hear that!

Cody Comments: Haha, a good problem to have. But honestly, you should consider trimming some of your longs to raise your cash percentage while so many of them are at all-time highs and have gone parabolic in recent months!

See you all in the morning in theTrading With Cody Chat Room or hear you on the phone at641-715-0700 Access Code: 709981.