econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 03 August 2017

The Best "Insurance" You Can Add To Your Portfolio Right Now

by Tom Gentile

Money Morning Article of the Week

‚ÄčI spent all of Monday with my wife and kids riding out Tropical Storm Emily. If you live in Southwest Florida like I do, you probably did too - I hope your family and your property are safe.

hurricane.palms


Please share this article - Go to very top of page, right hand side, for social media buttons.


Now, this storm was nothing compared to last year's historical Hurricane Hermine, which was the first one to make landfall in 11 years…

But there's one key lesson from both.

And with an even worse "storm" brewing right now - one that will affect all of us no matter where we live…

It's absolutely crucial that you take the next two minutes to read this.

Why You Need Protective Puts in Your Trading Arsenal

My family and I live in what we consider to be a type of paradise. The temperature is almost always nice, warm, and calm, and we have easy access to the water whenever we want to spend some time together on the boat.

But there are times when a tropical storm, or even hurricane, can hit us out of nowhere - like Tropical Storm Emily:

weather-report

That's why we always need to be prepared. We need to to have our water reserves full, our food supply stocked, and our insurances polices in place.

And the same is true when it comes to the financial markets…

Think of the bull market we've been in over the past several months (really, since Election Day) as like the weather down here in Florida. It's wonderful, warm, and pleasant… but it can turn at the flip of a dime.

And as you know from Friday, some economists, fund managers, and even Wall Street are bracing for what has the potential to be a financial crisis.

Now, no one truly knows exactly when this could happen and when the markets will correct from these historic highs. After all, they've been saying this ever since President Trump won the election. On top of that, it's only deemed a "correction" when markets experience a 10% pullback in the opposite direction. But it's better to be prepared before it happens instead of watching, waiting, and hoping for the best when it does, which could cost you a lot of sleepless nights.

That's why I'm talking about this now…

There's an options strategy you can employ every single month that acts as "insurance" for your portfolio: the protective put. This is a risk management strategy designed to mitigate any unrealized losses (I like to think of it as the food and water supply you need to ride out a storm).

You can place a protective put on a single stock by buying long-term equity anticipation securities (LEAPs) at or near the stock price. If the value of your portfolio drops when the markets fall, you can sell the put option for a profit, which would reduce your cost basis. That way, you can still bring money into your account to offset any unrealized losses at the time the put is sold. And you can do this on any optionable stocks (stocks on which you can trade options).

The best part is, you can can buy protective put options on exchange-traded funds (ETFs), like the SPDR S&P 500 ETF (NYSE Arca: SPY), too. So even if you don't have any individual, or very few, stocks in your portfolio, you can still hedge by using puts on the indices.

You can also go to ETF-specific websites or work with your broker to find the ones that most closely mirror your portfolio of stock holdings and consider opening put positions on them. That way, your ETF puts are better tied to the stocks you own and are familiar with.

And remember…

This isn't a cash flow strategy - it's designed to offset your unrealized losses by providing the opportunity to sell the put when your account value drops. This is "insurance" for your portfolio so that you're not stranded whenever the markets turn for the worse.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Investing Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.




Econintersect Investing








search_box
Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.







Keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government





























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved