Don Wellenreite – Hedging Your Stock Portfolio
The hedge preserves the edge.
If you hedge too much, you naturally dull the edge, so the challenge is to find a delicate equilibrium: How much risk are you willing to absorb in pursuit of a specific level of returns?
This is a leading investor concern. Last week, we recommended buying puts on the SPDR S&P 500 ETF Trust SPY-1.97% to hedge a $500,000 stock portfolio against a near-term market decline. The column sparked an avalanche of e-mails and inquires from readers eager to learn how many puts to purchase to hedge their equity holdings.
IN ADDITION, THE RELEASE of minutes from the Federal Reserve’s policy-setting committee, indicating that the central bank is debating an early end to its easy-money policies, spooked some investors and sent the CBOE Volatility Index—the VIX, or market-fear gauge—surging higher in anticipation of a stock-market correction.
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