Buy and Hedge Update: Tightening Up Protection Coming into 2025
By Derek Moore
Opportunistically Tightening Up Hedges
Towards the end of 2025 we opportunistically rolled the protective hedges up higher to further manage risk.
What that means is that in both Buy and Hedge Retirement and Buy and Hedge Classic strategies, the point where the protection starts below the S&P 500 Index was moved up to a higher level such that the protection starts earlier for you. We’ll talk about the differences between those two versions in a bit, but for those in the strategy, if markets turned lower (like they have since), the value of those hedges will better offset losses in the underlying holdings.
Does this mean that ZEGA got bearish?
No, we always are hedged within our ‘hedged equity’ suite of offerings.
It really was a function of the markets running so much higher as we got towards the end of the year and the existing protection no longer was offering as much value as the distance between it and the current market price gap grew. The positive of doing it when we did is the existing hedges still had value
This helped to defray the cost of rolling the hedges up in level, and out in time to keep the cost of hedging reasonable within our parameters.
Goals of Buy and Hedge
The goal of Buy and Hedge is to “hedge the downside” and provide protection in your portfolio.
The ancillary benefits include not trying to time the market, staying invested as markets can extend to the upside longer than people think just like they can go down. The other thing investors and their advisors tell us is that it helps them to sleep a little better at night. We don’t try and pick direction in markets but just provide a vehicle to look to minimize downside volatility.
We know that investors, even those retired, still need protected growth due to increasing costs and living longer.
Differences Between Buy and Hedge Class & Retirement
Both offer hedging but each has a nuanced approach.
Classic currently uses a tighter hedge closer to the money with the protection down to a certain point. The idea here is that we don’t need to hedge all the way down to zero and utilize tactical put spreads. An example might be a hedge starting at 3% down (out of the money) and lasting until 25% down.
Retirement currently starts around 10% down but is hedged to zero.
If you want to understand more about why you might choose one or the other, don’t hesitate to reach out to a member of the ZEGA Investments team.
To summarize:
- Late December ZEGA tightened up hedges in Buy and Hedge Strategies
- Meaning more protected than before
- While we rolled the protections, since existing hedges still had value, it reduced the cost
- As markets pulled back the value of the hedges increased and helped “hedge” portfolios
- Rather than try and pick direction, just be hedged!
That’s all for now but we thought sharing some of the current positioning was important.
Remember you can go to our website to find out more about the benefits and risks of the Buy and Hedge strategy here: https://zegainvestments.com/products/buy-and-hedge