Posted July 14, 2021
By Alan Knuckman
Are You Protected?
Did you know that you can remain bullish while still protecting your portfolio in the event of a market crash?
In fact, I encourage you to do so!
Before I get into it, let me preface this by saying, from where things are right now, I don't think there is going to be some huge market crash anytime soon.
But I do think it's important to understand that there's always the possibility of downside...
And in periods of increased volatility, it's in your best interest to protect yourself from that possibility!
So what can YOU do to cover your bases?
For starters, you can use aggressive put options.
Now, I rarely ever talk about put options, but they can be a great tool to hedge against loss if used correctly.
You can treat aggressive puts the same way. You can keep the majority of your portfolio bullish while maintaining a small position of cheap puts that will be offset by your profits if they expire worthless.
Sure, it might cut into your profits a little bit if they expire worthless. But that's a small price to pay for the added safety in case things go south.
Think about it, you're not upset when you have to pay your car insurance fee each month right?
That's because it's a relatively small fee in case something big happens!
And you wouldn't want to get caught in a car accident without insurance...
We’re using the same concept for the stock market! If a big decline in stocks does happen, your bearish positions can help offset some of the loss you might see in other parts of your portfolio.
Bottom line: Protect your portfolio and treat your hedges like insurance!
Keep it In the Money,
Trading Tip of The Day: Anything Can Happen!
Earnings season is off to a start this week with banks reporting first as usual… We had JPM and GS reporting before the bell yesterday and JPM beat its number...
But the stock was… lower on the news.
GS beat their number and experienced a slide as well….
Other earnings movers from yesterday: BA went lower after announcing its cutting 787 production, while PepsiCo rallied after beating their number.
No earth-shattering news here… So why bring it up?
Well, It just goes to show that banking on earnings can be quite the gamble nowadays!
An earnings beat isn’t a surefire rocket to the upside and you never know what might happen following an earnings announcement.
I think it’s better to use earnings season as a way of trading into hype by selling before the announcement. Sure, you might miss out on a bigger move, but you also might avoid a nose dive.
Just something to keep in mind if you’re planning on trading through earnings season this summer!