Covering Some BAC in the Percentage Hedge

I’ve covered a portion of my BAC short from Friday. I’ve bought back 450 shares at 16.27. You can read the original post that began this trade here.

Sharp moves like we see this morning are usually great opportunities to adjust a percentage hedge to either make a profit, or place the hedge in a better position to profit in the future.

This type of move also tells you what to expect in terms of movement of the warrant relative to the common stock in fairly short order, as opposed to watching less movement over a longer period of time.

If you’ve ever sailed a small boat, which I had the pleasure of learning to do in the the exotic and tropical port of Jersey City, you’ll quickly grasp the nuances of this trade. As the wind and current shift and become stronger or weaker, steering your craft consists of small but continual adjustments.

You are steering toward a distant point on the horizon, which for us is the long term warrant, but to get there is not a straight line. The small adjustments are the shorting and covering of the common stock, which if done correctly add up to nice profits along the journey.

But, just as with sailing, each trip is different, and each stock / warrant combination will behave differently. With no exact map, the best way to learn the hedging technique is simply to jump in the boat and start tacking.

I won’t do a post on every trade, as I’ll be sending trades by email to my subscribers, but with this first trade coming quickly after the initial position, I wanted to put the trade into a post. I’ll be posting a weekly review on Fridays with all trades done during the week. As of now I’m long 5,000 BACWSA and short 1,300 BAC.

To receive email updates in real time sign-up to my email list either on the right or at the bottom of this post.