Hedging a portfolio: Writing Covered Calls on individual positions vs Writing Calls on the Index
Hi - I'm currently managing an portfolio which is 90% long equities, a good proportion of which are US equities.
Looking at the overall valuation of US equities right now, coupled with political risk going into the 2020 election, I'm wanting to hedge my US exposure, while still keeping a number of US positions (GOOG, GS, DIS, APO) that I'm quite keen to hold on to Longer Term.
In the past I have used puts on the SPY to hedge exposure, although I am aware puts may be systematically overpriced, so have looked into alternatives.
As such I am interested in using covered calls to hedge the portfolio against the first x% of downside over a given period. Does anyone have any input on whether it would be best to write calls against the individual positions I am holding or to write calls against the SPY? As I see it right now:
Pros of Writing against individual positions:
1. Higher IV, higher premiums
2. Can set the call price at a price I would be willing to sell at currently.
Cons:
1. Gives away potential upside if I'm right on these positions
2. Greater spreads, Less liquidity (getting executed at reasonable prices on the call writes has been painful in the past)
Any input on this question in particular, as well as alternative approaches would be appreciated.
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