Hedging my portfolio after January's big lift

Author: Eric Steiman

Covestor model: Undervalued Opportunities

The Undervalued Opportunities model outpaced the S&P 500 and the Dow Jones Global by over 1500 basis points each in January. A few reasons were the fund's holdings in Mako Surgical (MAKO) and Renren (RENN), both of which performed very well. The fund sold its position during the huge rise, and even went short Renn in time to take advantage of the downward turn.

The Undervalued Opportunities model continually looks for promising trades to deliver strong returns within a few short months. I follow a set of strict rules based on these parameters. I always look to turn an unrealized gain into a realized gain.

Looking back, my RENN position carried the day, increasing significantly. I didn't buy at the low or even sell at the top. Even so, I am extremely happy with my trade.

I'm currently hedging my portfolio after a huge move in January and am currently long about 80% and short about 50%. A few long positions have been held for quite a few months as I believe in the long term potential.  Such stocks include Apple (AAPL) and Google (GOOG), and even a riskier bet in Tesla Motors (TSLA).

On the short side, I have initiated a position in Bank of America (BAC) after a 30% up move and am looking for some sellers to enter the market.  Another short position remains in Groupon (GRPN), which will be reporting earnings soon. I have doubts about Groupon's business model over time.

The Facebook IPO news has pushed the market higher and a few social media names are taking advantage.  Unfortunately, I'm not a big believer in this rally and am hedged after a huge January for the model.

I'm looking for a short term dip in order to close out my short positions and enter a few more longs.  A few notable names I have been watching are Starbucks (SBUX), Panera Bread (PNRA), Mercado Libre (MELI), Soda Stream (SODA), Imax (IMAX), Open Table (OPEN), Pandora Media (P), and Zee Entertainment (Z).

Good Luck and Happy Trading!

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