Trade Alert: Doing some more hedging
“Stocks are pricing in a major tax cut.” I can’t count the number of times I’ve heard that the last two weeks since two weeks ago, I wrote:
“Here’s what I think about the near-term set-up for the stock markets. If the tax package passes vote, the market is likely to have a sell-the-news reaction and I wouldn’t be surprised to finally see that 3-5% pullback that the market hasn’t seen in months. If the tax package doesn’t pass, I think you could see 3-5% pullback happening very quick, perhaps in just two or three days’ time.
Look, I’m still quite bullish about the overall stock market, the economy, and especially about the Revolution Investing approach we take. But I don’t like the near-term set-up — and I’ve been patiently waiting to put any new hedges or do much trimming/selling.”
The only part of that analysis that I would change now vs then is that the markets would probably be hit for a 10-15% sell-off if the promised Trump Republican Democrat Regime “Great Corporate Tax Giveaway” doesn’t happen.
If it does pass, and I’d say it’s a 75% chance the tax package gets signed before Christmas, I’d still expect at least a 3-5% near-term sell-off on a sell-the-news reaction.
So I’m buying some puts, just to help hedge the portfolio a little bit more. I’m buying another tranche of So I’m going to buy a small position in some IWM puts that expire in January and February with strike prices around $148-150 as I’d noted in that prior IWM Trade Alert from two weeks ago that I quoted above when I said that I was likely going to if the market continued to rally — which it has.
Not turning overall bearish or anything, but I do want to hedge a little bit more here as the markets and the IWM rally into the weekend on the hoped-for and probable passing of the tax bill.
