Hi . . . I haven't been trading for a few years, as I've been focused on launching and building up a startup company. I don't anticipate I'll get back into day or swing trading any time soon. Startups are less risky (ha). That said, I would like to learn more about historically effective strategies for hedging a portfolio, or even synthetic positions with defined downside risk. Recommendations for books, papers, websites etc. that provide legit, intellectually sound information would be greatly appreciated. Some things I would consider are: * stock plus long put * long call * collared stock * debit/credit spread * reduced equity exposure * other? Thanks in advance!
Hedging can be risky but if you follow the right approach, you can make great profits. While hedging against the investments, you will have to strategically use financial instruments or market strategies to offset the risk of any adverse price movements.
Hedging is expensive and usually not worth it. While papers may not help much when people who write those papers work for hedge funds and can't beat the market on risk-adjusted-basis. You'd do better than them just by holding SPY for years, at 7%-10%/year. Alternatively look into something like Ray Dalio All Weather Portfolio: https://www.google.com/search?q=ray+dalio's+all+weather+portfolio
I'm keeping an eye on SPY with a $400 protective put, in one case almost a month out (07/16/2021) and in the other case almost a year out (06/17/2022). Over the first 3 days, the short term put has lost less value ($), although percentage-wise it is way down compared to the long-dated option (40% vs 8%). I'm just trying to get a feel for how theta, delta and exposure to volatility trade off on this simple example. It's going exactly opposite of how I imagined it might, because I thought theta decay would dominate. It doesn't, at least as far as I can tell.