I wish to run a long-only portfolio of stocks and hedge it during turbulent times by shorting a correlated index.
I'd rather short an index ETF for hedging instead of flattening my position. My assumptions behind this strategy are as follows:
- If there are too many open positions, it will be more work to close and reopen them
- I believe my long positions will outperform the index during a correction
- I would rather not short individual stocks. Shorting index eliminates the risk of short squeeze, will always be ETB, and borrow fees will be low.
Coming to a concrete example:
Let's say that I fund a brokerage account with 100k in cash and turn on margin, which gives me 200k buying power.(For simplicity let's assume that it is a vanilla margin account as opposed to portfolio margin)
I buy 100k worth of tech stocks. I did not borrow anything to fund my longs. My buying power is 100k and maintenance margin requirement is say 25k.
At this point the market gets turbulent. Since my portfolio is all large cap tech, I short 100k worth of QQQ.
Have I run afoul of my initial and maintenance margin requirements?
Is the hedging strategy sensible?
How beneficial would it be to turn on portfolio margin in this scenario?