No. of Recommendations: 3
Hi All,

As many have pointed out, the cost of hedging the loss of your portfolio is going to be too high for it to make sense. There is, however, another way of creating a "partial" hedge on your portfolio: cash secured puts.

The idea here is that you sell the underlying positions (raising cash), and then sell cash secured puts on the individual stocks you own such that if they drop they are put to you, and if they go up, the puts expire worthless.

You get paid the premium up front, and if you graph out the returns of the put options + cash vs. the price of the underlying, you will see that you have sold off the top end of your returns in exchange for reducing your losses in a decline.

If the market tanks, you will still lose money, but less than had you been holding the underlying equities. Also, if the market booms, you will still make what you collected on the premiums, but would have been better off with the underlying stocks.

I'm not recommending this strategy, but it is another way to use options that might be interesting. Understand that cash secured puts is still a long strategy, in that you make money if the stock goes up.

--Gabriel
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