From our perspective, we would prefer to reduce risk via hedging above 1,260 on the S&P 500, rather than selling long positions. Why? There are still reasons to believe the market will rally somewhere between current levels and 1,260. Should weakness persist, buyers may resurface near 1,300. If we sell positions, we lose the opportunity to participate in any post bottom rally. A hedge can be removed at anytime to “gain” long exposure.
If we hedge, we also give ourselves a bearish path should 1,300 and 1,260 not hold. We can migrate to a bearish position under a worst-case scenario. Using hedges gives us maximum flexibility to deal with bullish and bearish scenarios.