Image Source: Pexels

Theme Summary

We're implementing portfolio insurance via a bear put spread on the Nasdaq (QQQ ETF), buying protection against a significant market decline that could trigger indiscriminate selling across all assets – including our deeply undervalued positions in shipping, energy, and emerging markets. This is not your typical Insider trade setup (long only stocks), but, as with our other trades, the downside is limited to the investment, and if we do see a material plunge in the Nasdaq we will achieve a large return.

Think of this as our "Big Short" trade – taking out insurance on a 2008 style crash, in an asymmetric way.

The Setup

The Nasdaq is exhibiting late-stage bubble behaviour reminiscent of 2000 – with 5x leveraged single-stock ETFs being filed, AI stocks trading at nosebleed valuations, and speculation running rampant. The Nasdaq is up 4x over the last decade while our sectors (small cap value, commodity producers, emerging markets) are up only 70% and virtually unchanged since 2022. History shows that unloved value stocks can hold up well during tech crashes (Russell 2000 Value was up 5% from 2000-2003 while Nasdaq fell 80%), but liquidity crises can temporarily pull everything down together.

The Opportunity

This Jan 2028 400/350 bear put spread costs approximately 5% of portfolio value but delivers a 9x payoff if QQQ closes at or below 350 by expiration – representing a 41% decline from current levels (roughly where it traded in 2023). We're risking 5% to potentially gain 45%, providing meaningful protection against the catastrophic scenario where panic selling hits our value positions despite their fundamental strength. This isn't market timing or crash prediction – it's professional risk management at asymmetric odds.

Portfolio Fit

This hedge is specifically designed to protect against correlation breakdown – the risk that a Nasdaq crash creates forced selling pressure that temporarily drags down even our uncorrelated, fundamentally sound positions. The 2008 GFC showed us that "everything" can get sold when liquidity dries up, even assets that had no business falling. This insurance policy lets us stay fully invested in our highest-conviction value themes while sleeping soundly if the tech bubble finally bursts.

Bottom Line

Professional-grade portfolio insurance at asymmetric odds – the kind of risk management institutional investors use but retail rarely sees. We've executed this trade across all Glenorchy Capital portfolios at the same 5% allocation we're recommending. Worst case: lose the 5% premium over two years while our value positions should do well. Best case: the hedge pays off 9x just when we need it most, cushioning any temporary panic-driven drawdowns elsewhere in the portfolio (there may also be none, in which case we do exceptionally well).

You can find a video of 3 of us (Chris, Brad and Lucas) discussing this here.

More By This Author: