When the Bull Buys Puts

Mid-Week Thoughts

Nothing attracts attention quite like the “permabull” buying puts. I tweeted it Monday and the reaction was insane. After two years of being called a permabull, the assumption was that hedging must mean I’d finally flipped. The bears treated it as validation, the bulls looked at it with confusion, and everyone else forgot the basic reality that Q1 (and markets in general) has a habit of punishing people who start the year strong.

The thing is when you hedge from behind it’s from a place of fear. Hedging from ahead is discipline. I’m +8.2% YTD into earnings, and I have no interest in donating that back because people on the internet prefer their bulls unhedged. I guess what I am saying is that the real danger in Q1 is being complacent when you’re up and earnings are about to test that complacency.

The distribution of outcomes for index hasn’t flipped, but the path is no longer as charitable as it once was. Tops don’t tend to announce themselves; they arrive when everyone thinks they don’t need protection.