First off: I sold out of BEP (S&P500 Covered Call Fund). I fully admit this ETF didn’t hedge downside in any way I expected. And by that I mean it didn’t hedge downside at all. If the market went up, it underperformed, if the market went down it underperformed. Very frustrating, because at least the way I looked at it it’s supposed to do well when it’s an uncertain, not too strong bull market (people want to buy calls, but don’t want to commit by buying stocks). Which has pretty much been the situation since it’s been in the portfolio.

Diana like I keep repeating is a company and stock I really love and barring some catastrophe will be in the portfolio at the end of the year. The main reason I sold out of it was a quasi-trading play, because the day after it rose to 16% on a day of extremely positive trading I was pretty sure some would cash out their gains. Hence, I sold it that night, DSX did indeed fall slightly the next day and I repurchased it at that price. It wasn’t value fare admittedly, but at this point any outperformance is valuable.

However, to quickly renumerate just how strong Diana is – it has a pristine balance sheet (23% leverage vs 90-150% for almost every other shipper), meaning even now it can raise debt very cheaply and easily. It has a substantial cash position, enough to straight out buy 4 more capesize vessels. But with 50/50 it easily has the ability to purchase up to 8 if necessary. On top of that, they have a 99.7% fleet utilization rate (only .2% dropoff from last year) and an average age of 5 years on its fleet meaning very low maintenance and upgrading costs moving forward. And it has a number of charters coming off in the next few months so they can take advantage of the surging BDI.

I’m also going to reiterate my confidence in ELON (Echelon) as a company that’s positioned to do extremely well because of the smart grid stimulus, and you won’t see me selling out of it permanently anytime soon. This is the other stock that I made trading plays on though which did quite well. I’m not sure if everyone knows this but us PMs are only allowed to buy/sell stocks after the market closes, so that’s why you won’t see more day-traderish moves from either of us. We can make day to day trades though.

And lastly, VXX. This is a trickier one to explain because you can look at it from different angles. My personal view is that the bullish momentum we’re in currently won’t last. And as soon as it begins to falter, implied volatility will spike. To give a quick overview of what that is, there’s historical volatility (trailing) and implied volatility (forward). CBOE’s VIX tracks implied volatility and is the index the VXX tries to emulate. While the VIX is definitely still higher than the norm if the norm is defined as 2+ years ago, I don’t think we’re out of the boat quite yet. And worth noting is that historical volatility has actually trended upwards slightly the past few months. So to answer Tom, yes this is a hedge against the current bull market faltering. It’s going along with the Initiative’s strategy of being as selective as possible with growth and value plays for upside (ELON, DSX) while using the rest of the portfolio more defensively.

As an aside for anyone who asks why I’m bearish holding nonexistent cash (like Avi did), the longer explanation is I think we PMs have an obligation to not just go after outperformance but to try to stimulate discussion. And while holding defensive names may not be that much more interesting, they at least have news attached to them. So for that reason despite not knowing Nicu’s rationale I like his recent moves. They’re exciting, and they express a view even if you may disagree with them. It’s that disagreement that makes IAG fun.

I sort of lazed this week, but for the future I’ll be doing portfolio updates on the day or day after trades are executed here, along with a midweek segment on news concerning companies in my portfolio and other random ones (I still have to write my MOT-VZ thoughts).