Hedging Key Questions

Once you understand hedging and the married put strategies, what are the key questions?

Hedging your portfolio or stock purchase is a crucial step in growing and protecting your money from market down turns and unforeseen events. Once you understand what hedging is there are some key questions that need to be answered.

Step 1: What type of hedge are you going to use. Below are some different ways you could potentially hedge.

• Buying Puts on Stock or Index (Married Puts)
• Buying Put Ratio Spreads 1×2
• Buying the VIX Calls
• Buying Inverse ETF’s
• Short Futures in a ratio to your portfolio

This is a very very short list of methods you can use to hedge because it would probably take a book to write about all the ways to possibly hedge. For me my top two methods for hedging are buying puts or buying put ratio spreads.

Things to consider when hedging with puts or ratio spreads.

• Strike Prices ( In the money , at the money , or out of the money)
• Days to expiration (How many days to expiration on the options you buy)

Once you have decided on the strikes and days to expiration the next key questions are the following:

• When to adjust your hedge (rolling up or down and/or rolling in or out in time)
• When to sell income spreads to help pay for the cost of the hedge
• When to add to the position with the profit on the hedge

Hedging is much more extensive and complicated than to just buy insurance on your positions. There are many decisions that need to be considered and made during the life of a trade or the management of a portfolio. It does not need to be complicated but preparing a plan of action before entering any trade is a great help. In this newsletter I will try and give demonstrations of live trades with the adjustments and trade decisions so that you can learn by following along and view the results of how the trades and positions play out. Subscribe to keep up with any adjustments in the future.