Evaluating the hedge

After two weeks with the new hedge in place (Sep SPY puts, strike 144), it's time to do a little evaluation. The figure shows the ROI of the hedged portfolio (purple) and the value of the portfolio minus the value of the puts (i.e. unhedged, grey), starting June 1. We can see the hedge worked very well in reducing drawdown and volatility of the portfolio.

Because we have been in constant drawdown since June 1, but the drawdown did not exceed the allowable S&P drawdown of 6%, there was no need to adjust the hedge. In case the S&P would move up in the coming days, we would have to adjust the hedge from a 144 strike to a higher strike. Because this is costly (we pay the spread and transaction costs), I will readjust on a weekly basis and only if there is indeed a substantially higher top in the S&P.