Monday, June 16, 2014

Hedging a stock portolio

I have $X invested in shares, mostly in Singapore. I do not like the events in Ukraine, Iraq and South China Sea. I wanted to sell some of my share holdings, but it will take some time. 
I decided, as an alternative, to sell $X in futures (S&P and Nikkei). If the stock market falls by 5%, I hope to be able to gain 5% on the futures. However, if the stock market rises by 5%, I will lose 5% on the futures. So, my net exposure should be nil.
My actual holdings in shares will not correlate exactly with the two indices that I have sold. So, there will still be a small net exposure, perhaps of 10% or so. It does not matter. At least, I am more than 90% protected.
When the events are resolved, I can remove the positions in the S&P and Nikkei and continue to hold my long stock position.
This is an example of using the futures to hedge an existing stock portfolio.

I use the online platform called It is easy to use and is much better than other platforms that I have tried previously.

Tan Kin Lian


Unknown said...


You should just leave your portfolio alone if you have already decided to invest for the long term.

This 'hedging' manoeuvre would incur unnecessary costs.

(Just my 2 cents worth)

yujuan said...

TKL is right, the events at Iraq is the biggest threat to portfolios. Iraq is one of the main oil suppliers for Asian countries, and civil wars is catastrophic to their economies.
Maybe TKL knows more about hedging, local stocks do look precarious as high oil prices affect businesses and thus the Equity market.
Wait for correction to come. Cash is safer.

michael13 said...

About stock market, John Templetion said: "Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria."

So you decide....or not sure, don't touch!

Singapore's 5 Minute Investment Diary said...

Dear Mr Tan
Thanks for sharing. Please let us know how your hedging strategy works out.

Another possibility might be to short the Straits Times Index and/or your shares with a "short" position with CFDs.

The challenge is always the correlation between your portfolio and the S&P 500 and Nikkei.


Another possibility might be to purchase bearish put options on the S&P 500.

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