The hedging strategy that had been in development for the last few months was turned on and the old system turned off.  Overnight movement has been moving the markets in 1% and 2% increments while normal (day) hours have had little effect on the market except for the recent S&P outlook statement of "Negative" for the U.S. and a potential downgrade of its debt.

The market continues to wobble between 1340 and 1280 range with most of this movement coming in overnight development where volatility has increased while normal hours have plummeted.  The VIX stands below 20.

The hedging strategy is a "sell the volatility" during these times and as such we will be representing the hedging strategy in this category as well.  The options premium taken in is the amount of money we have taken in, and if it expires, we will collect this premium.  The liquidation value is if we don't wait until expiration and we "buy back" the options.  The risk in this case is if the market plummets in one directio or another significantly, then we will have to deliver the underlying futures contract (at the strike) to the purchaser at a loss.  We have 100 points of strike room and roughly 140 points of room for break even.  An overnight move or any other move of 140+ points would create a loss.

The above strategy represents the correct strategy to implement to gain profits from flat markets that lack direction.  NOTE:  WE CANNOT PUT THESE HEDGES DOWN AS PROFIT OR LOSS UNTIL EXERCISED OR EXPIRED.

The discretionary component will be the experimental component, which has to be tested live.  There is really no way to test something without putting into the market.  This will be the fundamental component that is less about the current algorithm and more about future development.  Expect gains to be at or near zero, but its worthwhile to discuss. 

 The market is always right, and so is everyone else (eventually).  Whether you are a Bull, Bear, or just don't care, you are probably right.  After the last year of being mostly right, we are experiencing a little wrong at the moment.  And though we are down, its not really becuase of the market.  But, when down I can't help but look around and get a feeling that everyone is just indifferent to the market, other than the stock market.  No one really cares, until the market crashes of course.  But right now, everyone in the market is happy with 6% and sees the market at possibly 10% this year. 

But, do we just climb 4 percent for the next 8 months?  Or do we climb 5%, down 3%, climb 2% down 10%, climb 10%, etc.?  I don't know, and neither does anyone else.

Sell in May and Go Away, Buy the Dips, Sell the Rallys, Long Gold, Short the Dollar, Long the Euro, Buy Discretionary, Buy Tech...its enough to make your head spin....so, I have gone back to what works, avoiding at all costs these market suggestions and prognostications and getting back to basics.

I was a little busy with getting the accounts set up all while trying to finish the hedging system that I did not focus on doing my other job which is let the system dictate what it needs to do.  Leaving hedges on through February to maintain 42% year over year hurt 2011 so far, and not being able to modify hedges during a long flight from Orlando to New York while a nuclear meltdown was about to hit, really taught me the final lessons.  I was trying too hard to "beat the market" and the "market pros" and wasn't letting the system do its job.

So, by turning off the T.V. and all other external market "pros" I feel as though things are back to where they were during last summer, back to not really caring what the "pros" and the "market" do and simply focus on the algorithms.