Hedging Strategies For Protecting Mining Profits In New York’s Forex Market

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Hedging Strategies For Protecting Mining Profits In New York’s Forex Market – July 13, 2022 By Mike Shell in Absolute Return, Asymmetric Hedge, Asymmetric Observation, Hedge Funds, Put Options, Put/Call Ratio, Volatility Trading

The green top shows the Cboe S&P 500 5% Put Protection IndexSM in black and the S&P 500 stock index in red. It is clear that the structured index hedge helped hedge the downside risk to the SPX during the March 2020 waterfall, but the same hedge has not protected long beta portfolios in 2022.

Hedging Strategies For Protecting Mining Profits In New York’s Forex Market

Hedging Strategies For Protecting Mining Profits In New York's Forex Market

The Cboe S&P 500 5% Put Protection IndexSM(PPUT) tracks the value of a hypothetical portfolio of securities (PPUT portfolio) designed to protect an investor from a negative S&P 500 performance. PPUT’s portfolio is made up of the S&P 500

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Stocks and long-term one-month 5% out-of-the-money put options on the S&P 500 (SPX put).

Let’s see what happened as a result of these two very different results, and I will share my thoughts on what changed that affected the results.

Using data from YCharts, we see a full year 2020 chart comparing the S&P 500 Total Return Index (SPX) to the Cboe S&P 500 5% Put Protection Index.

(PPUT) which is long the SPX, but adds a one month 5% from the money put option on the S&P 500 (SPX puts) hedge option.

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For a structured hedge strategy, 2020 was a good example of risk management that not only creates downside control, but also how avoiding large losses can increase portfolio performance in

The S&P 500 dropped more than -30% around March 2020 as the COVID spread, but the 5% SPX pared the decline to -16.52%.

The 5% strategy hedges a 50% drawdown, and continues to allow long-term exposure to the S&P 500 to nearly double the stock index.

Hedging Strategies For Protecting Mining Profits In New York's Forex Market

Naturally, the amazing performance of this very simple wiring strategy followed by PPUT attracted attention after it worked well.

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Fast forward to 2022, and the result is completely different. Traders and traders who relied on the 5% monthly option have fully contributed to the decline in the SPX this year.

I will try to explain my thoughts as briefly as possible because understanding things taken as options is the most complicated task in the stock market for many people.

For more than two decades, I have focused on alternative trading strategies in pursuit of asymmetric returns leading to asymmetric investment returns.

Asymmetry is not just about finding a lower level of risk that yields a higher expected reward, such as a 2-to-1 reward to risk.

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Instead, the asymmetry is more focused on reducing the decline in hopes of avoiding the negative asymmetry of losses.

So, I’m actively focused on growth trading, systematically trading the global universe of ETFs, and volatility trading/hedging, all of which are not stressed in my core portfolio. .

The short and sweet answer to why this time was different than 2020 is the performance of these issues.

Hedging Strategies For Protecting Mining Profits In New York's Forex Market

The phenomenon of asymmetric volatility suggests that prices are falling faster than they are rising, which can be an advantage for placing an option, or a problem when it is quiet like this year.

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Mike Shellis Founder and Chief Investment Officer of Shell Capital Management, LLC, and portfolio manager of ASYMMETRY® Managed Portfolios. Mike ShellandShell Capital Management, LLC is a registered investment advisor focusing on risk reward and investment strategies. returns total and provides investment advice and portfolio management. only to customers with a signed and executed investment management agreement. Opinions shared on this website are for general information only and should not be considered investment advice to buy or sell any security. This information does not imply that any graph, chart or formula provided may guide an investor as to when to buy or sell, or when to buy or sell. The securities shown are not intended to represent consumer goods or recommendations made by the firm. If any past recommendations are incidentally mentioned, a list of all recommendations made by the company for at least the first year can be provided upon request. It should not be assumed that the recommendations made in the future will be profitable or will be equal to the performance of the assets in the list. Any opinions expressed may change if the following circumstances change. Please do not make any investment decisions based on such information, as it is not advice and is subject to change without notice. Investing involves risk, including potential losses that the investor must be willing to bear. Past performance is no guarantee of future results. All information and data are deemed reliable but are not guaranteed and should be independently verified. The presence of this website on the Internet shall not create the impression that Shell Capital Management, LLC offers to sell or solicits to sell advisory services to residents of any country in which the firm is not registered. as an investment advisor. . The views and opinions expressed in ASYMMETRY® Observations are those of the authors and do not necessarily reflect the position of Shell Capital Management, LLC. Use of this website is subject to its terms and conditions.

ASYMMETRY® Analysis is Mike Shell’s opinion on investor behavior that causes price trends, global, ETF trading, leveraged trading, hedging, volatility trading change and risk management resulting in asymmetric investment returns. An asymmetric return position is a risk/reward position with a positive asymmetry between profit and loss. Mike Shell is the founder of Shell Capital Management, LLC and portfolio manager of ASYMMETRY® Global Tactical. For more information, visit www.Shell-Capital.com Strategies from the world of traditional finance can offer promise to miners looking to reduce the risk associated with holding assets.

To a newcomer, crypto mining may sound simple – in fact, it’s a way to turn on a machine, walk away and watch the top crypto rewards. But the truth is more complicated.

The oldest and most powerful crypto, Bitcoin (BTC), uses a proof-of-work algorithm to ensure the security of the blockchain, and many other influential cryptos have followed suit . Miners of PoW protocols receive a crypto reward whenever they are the first to provide the correct answer to the cryptographic math problem that validates each block of data on the blockchain. As miners work on the same blockchain network, the competition becomes tougher to solve this problem and win the crypto prize.

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In order to improve their chances, miners generally use hardware that requires more hardware and electricity to be more powerful. Crypto miners need to make significant rig investments and pay high monthly electricity bills if they want any chance of earning a mining reward more than once or twice in a blue moon.

Areas with cheap electricity tend to attract more miners, but even in the midst of this activity, profit margins tend to be tight. As a result, miners generally sell their mined crypto as soon as they can. Selling their earnings for fiat not only helps them keep their rigs open but also lowers the risk of losing their profits or even having their money invested in mining equipment if market prices fall they come down. That cautious business model also makes it difficult for miners to earn high returns on investment, which many crypto traders enjoy—especially when they have complex systems that borrowed from the world of products and traditional finance.

But as crypto markets continue to grow, more and more asset classes are available to miners and can help them get a higher ROI on their mining investment – without putting themselves out there. at risk of huge losses in the volatile crypto market.

Hedging Strategies For Protecting Mining Profits In New York's Forex Market

High-yield accounts are a good low-risk solution for any crypto holders who feel secure about their assets and prefer to hold them. Miners can submit their list to account providers, who use the held assets to issue loans to crypto users looking for more money.

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Borrowers repay their loans to account providers over time with interest, and the account provider shares that interest with the account holder. These accounts tend to generate more interest when long-term account holders agree to close their accounts. Standard accounts with popular services such as Compound, BlockFi, Celsius and DeFiner offer 5%-10% annual earnings.

Crypto has market volatility like any other commodity – and futures contracts can help miners turn that volatility into a revenue generator. Futures contracts are securitized agreements to buy and sell an asset at an agreed price and time when the futures are established. Crypto miners can hedge some of their crypto holdings in a futures contract and sell that contract for more than the current market value of the crypto.

During a market condition called contango, futures contracts are priced higher than their current “price” – the market price traders pay to get the goods immediately. The difference between futures prices and spot prices is also called premium in spot prices. Instead of selling their new crypto for the current spot prices, miners can sell a futures contract to lock in that fee.

When evaluating futures contracts, miners should be aware that they are

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