Hedging with options to insure against a market sell-off
Back in July 2020, I wrote this article: How to hedge stocks. 5 levels of hedging. In that article, I explore various ways of protecting your portfolio, from the easiest way which is to simply keep cash to more advanced methods such as using leveraged inverse ETFs.
One of the hedging strategies involved using options (level 4 of hedging). This is not an intuitive method for most people, given that the usage of option is still often seen as a “black box”. However, in my frank opinion, options should be seen as a quintessential tool as part of your trading arsenal and not something to be feared of.
With the right knowledge, options can be extremely flexible, with one of its key valued functions as a hedging mechanism....