Caution Paying Off

We’ve been cautious for a while now, selling into strength and adjusting hedge sizes. It’s been far from perfect, believe me, because some of what we sold we should have held longer into the rally, and we bought our hedges too early. We netted out positive, but would have done better if not for those crimps on profit.

Our caution may finally be paying off, though. Brand new subscriber Kent in Connecticut sent the following note earlier today:

I am a new member, joining your web site last weekend, and I am halfway through reading your little book that I ordered from Amazon.

Just wanted to thank you for your recommendation to buy a hedge with BGZ and to change the entry price from $17 to $18. Today, [with the market losing 3.1%] that hedge is covering my butt, and reducing some of the stress a day like this could cause.

That one call paid for my yearly subscription to your web site ten times. I hope to enjoy similar success as I adopt a few other of your ideas in the weeks and months to come.

And I hope to provide Kent with similarly useful calls down the line. By the way, the part of last Sunday’s note that led Ken to buy BGZ at $18 was this:

With the market’s continued drop last week, our limit order to double down on our BGZ hedge at $17 in Tier 3 did not fill. It closed the week at $18.88, a full 10% away from our target price. It would take a move on the S&P; 500 back to 1110 or so to see that fill, and I doubt it’ll go that much higher on a relief bounce. It might go to 1095, though, so let’s adjust our order from $17 to $18:

Double down on Direxion Russell 1000 -3x (BGZ) at $18

A modest relief bounce would see that fill, and put us in position to make a few more moves before a drive lower takes hold in a new downward-sloping channel.

The S&P; 500 peaked at 1105 on Tuesday, and BGZ bottomed that same day at $17.22. It was good to adjust the order upward. BGZ closed today at $19.23.

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