Update on Alcoa and How I Hedge Positions

Well, this one started out OK, but unfortunately I didn't take profits. It was up nicely on the day of the big crash, but is now down 1%. This graph ignores the 10% aluminum hedge. I hedged with the LME 15-month forward - it is exactly unchanged. If you used nearby, you did better.

For the record, I consider myself a mostly market-neutral trader for my short term trades. I study the commodity markets and try to find opportunistic stocks that will out or underperform. My hedges are usually simple S&P 500 futures. I'm not a general stock analyst, and I don't have a list of companies I want to be long or short. On AA, I started out with an unhedged position, but sold futures when the market broke down. (I've adjusted the trade in the Feb. 19 post to account for this.) AA's beta is 1.43. The orange line shows how this trade has done, slightly below breakeven. I'm keeping it on, but I do have a stop in mind. Knowing some of the bastards who read this blog, I am not publishing my stop.

I do not hedge on long-term long equity trades. My view is that stocks go up long-run. Hedging reduces your potential. Now, hedging will reduce your volatility. However, I am trading my own money, and my leverage is pretty low. So short-run vol. is not a big deal to me. As an extreme example, I've been long oil stocks since 2001, and I've had the oil futures hedge on since it went into carry.