You asked about using $2,000 worth of puts per year to hedge a 400k portfolio. Asked and answered. You also asked for other suggestions so here's that two cents. Long puts bought to protect appreciated stock is like car, home, health insurance. It's a total waste of money until you need it. In general, it costs about 6-8% a year to hedge with index puts. That amount may seem trivial this year as well as since 2009 but it's a lot of drag on a portfolio and in more normal times, it approaches long term annual market gains. With your long puts, the maximum loss you could incur would be the from current price down to the strike price of the put (like a deductible) plus the premium cost. As with insurance, if you want a lower deductible, buy a higher strike price which means a higher premium cost (and vice versa) I think that a more efficient way to protect individual stocks/ETFs is to collar them with their own options. That involves a willingness to sell the stock at a higher price. Do it on the securities that you feel are over valued or have run up too quickly. Sell an OTM call and use the proceeds to buy an OTM put for every 100 shares that you own. That defines a floor beneath which you cannot lose as well as a ceiling, beyond which you do not profit (unless you roll the calls up and/or out). Collared long stock is equal to a covered call and a long put. A covered call is synthetically equal to a short put so if you make the substitutions, a collar is synthetically equal to a bullish vertical spread (floor and ceiling of P&L?) Equity collars can be structured for no low/cost. If you want to skew the risk graph to having more upside than downside, sell a call further OTM - the collar will have a higher cost. Skew it in the opposite direction and it can be for a credit. Dividends with affect the collar's cost but since they affect option premiums, they're factored in. Do shorter term collars (1-3 months, depending on distance from strike and implied volatility. With a short call strike that is reasonably far enough OTM, there's a decent chance that the stock will appreciate and not be taken away by assignment by expiry. If it expires, add later month's collar at higher strikes. Wash, rinse, repeat. If the underlying approaches the short call strike, you can roll the short call up and/or out. And if the market tanks, you can roll yiur collar's long puts down, booking option gains while remaining protected, though to a somewhat lesser degree). Caveat? Don't monkey with collars if you absolutely don't want to sell the stock.
Best to buy options matching the tenor of the risk you're concerned about -- apparently 2018 in your case. So Dec 2018 expiries.
Anybody know of collar studies showing expected performance? You can find them for buy/write (covered call) strategies, as well as ETFs for same. Obviously the short call reduces the drag created by the long put, but it caps gains, too.
Google the "CBOE S&P 500 95-10 Collar Index" (CLL) It's a three month SPX put 5% OTM and a one month SPX call 10% OTM. It does not perform well compared to their PUT, BXM and BXMD option writing indexes. The CBOE has some papers describing these.
I don't see the value in making distinctions between crashes and bear markets, since they both look the same when a real-time decision is called for - hold or sell. Either way, the worst of both would have been avoided or siginificantly mitigated by selling equities if either - a) Dow closes below 50EMA or b) Dow's 20EMA crosses below 50EMA
That is correct - at least up to a certain point in time as these things are just developing they look very similar. But what's more important is what to do about these things. How would you deal with one of the crashes you mention differently from one of the bear markets you mention?