On sufficient improvement in market internals, we would be inclined to
establish call option positions that would gradually take us to a significantly less hedged position on persistent market strength, but we do not expect to eliminate our put option defenses until the combination of valuations and market action becomes clearly favorable, or until it is reasonable to expect a sustained economic recovery within a quarter or two.
Not exact matches
That's why we hold over 200 individual investment
positions in Strategic Growth, why we diversify across industries, why I left complete put
option coverage underneath the Fund's portfolio even in response to a favorable shift in our measures of market action two weeks ago (now neutral), why the dollar value of our shorts never materially exceeds our long holdings, and why even in the most favorable conditions, the Fund can
establish leverage only by investing a small percentage of assets in
call options (never on margin).
In a richly valued market, that sort of risk control is most appropriately
established using
call options having a strike price situated at about the point where various trend - following measures would turn negative — what is known in finance as a «contingent
position» because the
position creates its own exit if the market deteriorates further without an interim recovery - and particularly if it deteriorates abruptly.
Specific strategies for reducing or «hedging» market exposure may include buying put
options on individual stocks or stock indices, writing covered
call options on stocks which the Fund owns or
call options on stock indices, or
establishing short futures
positions or
option combinations (such as simultaneously writing
call options and purchasing put
options) on one or more stock indices considered by the investment manager to be correlated with the Fund's portfolio.